THE BLOG'S THREE MAIN OBJECTIVES:
~*Revealing and Getting Rid of Scams | Creating Honest Sustainable Wealth | Offering Happiness, Safety and Legitimacy*~

Friday, 30 September 2011

Three steps to avoid a global depression: Soros

LONDON (Reuters) - Policymakers have lost control of the economic crisis and financial markets are forcing the world into a depression, George Soros said on Friday, urging Europe to create a common Treasury, recapitalize its banks and protect vulnerable states.

Soros, chairman of Soros Fund Management who made a fortune during the 1992 sterling crisis, said the most important task was to "erect safeguards against contagion from a possible Greek default."

"Since a euro zone treaty establishing a common Treasury would take a long time to conclude, in the interim the member states have to appeal to the ECB (European Central Bank) to fill the vacuum," he wrote in an article for the Financial Times newspaper.

"Both the banks and bonds of countries such as Italy and Spain need to be protected ... To relieve the pressure on the government bonds of countries such as Italy, the ECB would lower its discount rate."

Soros said the ECB could then encourage countries to finance themselves with Treasury bills bought by banks. Those banks could then at some stage rediscount the bills with the central bank, allowing countries to refinance for about one percent a year during the "emergency period."

"Neither the ECB nor the EFSF (European financial stabilization facility) would buy any more bonds in the market," he said.

He said the EFSF should be used to guarantee and recapitalize banks who would then have to maintain credit flows under guidance and monitoring from the ECB.

"These measures would allow Greece to default without causing a global meltdown," Soros said. "That does mean that Greece would be forced in default ... How Greece fared would be up to the Greeks."

However, he said only public demand for his plan would make it happen, given likely resistance from banks and national governments.

(Reporting by Matt Falloon)

“It’s Going to Get a Lot Worse”: ECRI’s Achuthan Says New Recession Unavoidable

By Aaron Task

Weakness in leading economic indicators has become so pervasive the Economic Cycle Research Institute now predicts a new recession is unavoidable.

"The vicious cycle is starting where lower sales, lower production, lower employment and lower income [leads] back to lower sales," co-founder Lakshman Achuthan declares in the accompanying video.

Whereas Achuthan said the jury is still out in late August, the weakness in leading economic indicators — and ECRI uses a dozen for the U.S. alone, he notes — has become a "contagion" that is spreading like "wildfire."

Although the recovery has been "subpar" by nearly every measure, Achuthan refutes the idea the economy never got out of recession in the first place. "Just because it looks and feels a certain way doesn't mean it's a recession," he says. "You haven't seen anything yet. It's going to get a lot worse."

It's too soon to predict just how bad it's going to get, but he expects another spike in unemployment and further expansion of the federal government's $1 trillion deficit. This forecast has huge ramifications for the 2012 election and the already struggling U.S. consumer and Achuthan says a "mild" recession is the best-case scenario.

By now you may be wondering what separates ECRI's recession call from the myriad other recession calls out there. First, ECRI's primary raison d'etre is predicting recession and recovery calls. Second, and more importantly, The Economist reports ECRI has never issued a "false alarm" on a recession call, meaning many of the Chicken Littles currently declaring "the sky is falling" might actually be right this time around.

The Game Is Rigged: Jack Bogle

By Matt Nesto

Just as I was considering another attempt at hastening my journey to wealth via some form of speculation on stocks, a wise old sage came along and told me not to.

"The game is rigged," says Jack Bogle, the octogenarian founder of The Vanguard Group. "It is too convoluted. It is too complex. You shouldn't be playing the game. You don't need to play the game."

With his paternal loyalty intact, the man who created the first index fund 35 years ago is unbending in his belief that speculators lose, and owning the broader market for the long haul is the best path to wealth appreciation. Not surprisingly, the enormous popularity and diversity of offerings within the fast growing universe of exchange traded funds or ETFs, has failed to convert him.

"The index investor doesn't need to be touched by any of the lunacy that is going on in the ETF market,"says Bogle. "The ETF industry, which has got to be the greatest marketing idea of this age, is not the greatest investment idea of this age, I can assure you."

It's not so much products with triple leverage that irk him about ETFs, it's more the velocity that they represent. Bogle abhors the notion of trading and timing, and the long odds that go with it. He insists no one is smart enough to do that for the long haul.

"If you own the stock market for a lifetime, you get those returns. Playing games in the stock market, over every day of that time, is playing the stock market. The stock market game is rigged, the business of investing is not rigged," says Bogle.

His reasoning is simple. The use of capital by companies to "develop new products, efficiencies, innovations, productivity, the improvement of consumer goods and services at lower and lower prices" is all very real and ultimately validated through earnings. It's a proven process that delivers long-term growth that mirrors the pace of economic growth, plus a pinch of dividends to round up the results.

The problem is that investors want more than 6 or 7 percent gains and they want it fast. Unfortunately it's been a wild ride over the past 11 years. We've made great highs and painful lows, until to finally landing at the same place we started from, a.k.a. "the lost decade."

It's the eternal rift that marks the difference between investing and trading. The intended outcomes are the same, but the paths to prosperity are wildly different.

Do you agree with Bogle? Are investors better off than traders? Let us know in the comment section below.

Thursday, 29 September 2011

Fund Goes Down Blind Alley

by Robin Sidel

Developer Set Up Vehicle to Invest in Banks but Couldn't 'Make the Numbers Work'

Real-estate developer Stephen Ross and his partners spent more than a year digging into U.S. banks, including more than 100 with loans to local bakeries, gas stations and amusement parks. They hoped to spend about $1.1 billion buying or investing in lenders.

But the deeper they went, the worse things looked. As a result, Related Cos., the New York firm in which Mr. Ross is chief executive, gave back the money it raised from roughly 150 investors, including hedge-fund manager David Einhorn. The firm did find several investments it was interested in but was outbid.

Just 18 months ago, Mr. Ross thought the U.S. banking industry was a lucrative investment opportunity that could yield big profits as the economy recovered. At the time, private-equity firms, hedge funds and other investors were pouring capital into banks.

Since then, signs of economic improvement have faded, leaving many of the nation's 7,500 banks and savings institutions besieged with troubled assets, weak loan demand, rising regulatory costs and few growth prospects.

"We're disappointed to see the opportunity evaporate," said Mr. Ross, whose company developed the Time Warner Center in Manhattan's Columbus Circle. He also is the majority owner of the Miami Dolphins football team.

Mr. Ross now believes it could take the U.S. banking industry another three years to get back on its feet. The weak economy put the brakes on an uptick in loan demand, creating more competition among banks for credit-worthy borrowers. Low interest rates are eating into the bread-and-butter business of making money on the difference between what banks pay for deposits and what they charge for loans.

"If you look at the environment today, I feel even more comfortable that we made the right decision," Mr. Ross said, referring to volatility in global markets tied to worries about European debt and the U.S. economy.

The fund, called SJB Escrow Corp., was set up amid a brief flurry of so-called blind pools aimed at banks. Blind pools raise money to invest in a stated objective. Since 2009, investors have ponied up billions of dollars for the pools. Most of the investment funds are led by former bank executives who intended to buy a string of small financial institutions, recapitalize them and combine them into a larger bank that goes public at a profit for investors.

Most of the pools are required to invest a big chunk of the money within two years or return it to investors.

The performance of the blind pools is difficult to gauge because the banks they own often aren't publicly traded. Still, many of the stakes are likely underwater, given the persistent decline in bank stocks. The KBW Regional Bank Index is down more than 20% this year.

Other blind pools still are pouring money into sick banks.

"I'm not suggesting to anyone it will be a walk in the park, but I'm a believer long term that we can create value for shareholders in this market by operating a commercial bank very well," said Paul Murphy, chief executive of Community Bancorp. The Houston bank-holding company is backed by a blind pool and has bought two banks this year.

In addition to the $1 billion that Related raised from investors, Mr. Ross and partners Jeff Blau and Bruce Beal sank $100 million of their own money into SJB, named after the first letter in their names. Terms of the pool required SJB to invest the money within 18 months. SJB got a bank charter from regulators, hired an industry veteran as its chief executive and assembled a board of directors.

In a prospectus, SJB told potential investors: "We believe the environment presents a significant opportunity for SJB to consummate an attractive acquisition of one or more institutions, whereas the current weakness in the banking sector and a potential long duration of any recovery create a favorable long-term environment to build a successful commercial bank."

Mr. Blau, Related's president, led the effort to find potential investments for the fund. In many cases, Mr. Blau didn't like what he saw, including loans that were secured by portable toilets and bowling balls.

"It was a lot of work, and it was hard to make the numbers work," he said.

SJB initially was attracted to banks with lots of real-estate exposure. One example: condominium lender Corus Bank, a unit of Corus Bankshares Inc. that failed in 2009. SJB bid on Corus's real-estate development loans that were being auctioned off by the Federal Deposit Insurance Corp., but was outbid by a group of investors led by Barry Sternlicht's Starwood Capital Group.

The blind pool made four other unsuccessful bids, including one for failed Cleveland thrift AmTrust Bank, part of AmTrust Financial Corp. More recently, SJB made an offer to acquire the U.S. online-banking business of ING Groep NV, but lost out to Capital One Financial Corp. The $9 billion deal was announced in June.

With the clock ticking on its 18-month deadline, Messrs. Ross, Blau and Beal sent a letter to investors Aug. 18 informing them that the fund would be liquidated. Investors received roughly 97 cents on the dollar after expenses. Mr. Einhorn, one of the investors, declined to comment through a spokesman.

"While we are disappointed that we were not able to acquire a banking franchise and execute the SJB business plan, we refused to compromise on transactions that did not offer both an appropriate margin of safety and attractive returns," the letter said.

Mr. Ross said there is "a lot of money to be made in the future of banks," especially in online banking. "We want to be back in it. The question is when."

Double your salary in the middle of nowhere, North Dakota

By Blake Ellis

NEW YORK (CNNMoney) -- Believe it or not, a place exists where companies are hiring like crazy, and you can make $15 an hour serving tacos, $25 an hour waiting tables and $80,000 a year driving trucks.

You just have to move to North Dakota. Specifically, to one of the tiny towns surrounding the oil-rich Bakken formation, estimated to hold anywhere between 4 billion and 24 billion barrels of oil.

Oil companies have only recently discovered ways to tap this reserve. And along with the manpower needed to extract the oil, the town is now scrambling to find workers to support the new rush of labor.

Watford City is at the center of the Bakken formation. While it is home to less than 3,000 permanent residents, there are about 6,500 people there right now, as job hunters relocate to seek out high-paying jobs.

Aaron Pelton, the owner of Outlaws Bar & Grill in Watford, said his sales have been nearly doubling every year -- and it's only getting busier. Servers at his restaurant make about $25 an hour when tips are factored in, and kitchen staff employees make around $15 an hour.
Surprise six-figure salaries

Vickie McMullen and her husband were living in one of the poorest cities in North Carolina, and they knew they needed to move to dig themselves out of debt. When they looked online earlier this year and saw the number of high-paying job opportunities in Williston, North Dakota -- less than 50 miles from Watford -- they knew it was the place to jumpstart their lives.

McMullen now works as a nanny in exchange for housing. Her husband, who worked on behavior management programs for a school system in North Carolina where he took home about $1,600 a month, found a job working in the oilfields where he makes that same amount of money in one week -- adding up to an annual salary of about $77,000.

"We want to be debt-free, so we came here to play catch-up," said McMullen. "But when I came here, I thought I was on Mars. It's just so crazy that the rest of the country has no jobs, and here's this one place that doesn't have enough people to fill all the jobs."
Where jobs are booming

With oil companies paying top dollar to the new onslaught of workers they need -- doling out average salaries of $70,000, and more than $100,000 including over-time -- other local businesses are boosting their pay to compete.

Entry level jobs everywhere from restaurants and grocery stores to convenience stores and local banks pay a minimum of $12 per hour, according to the McKenzie County Job Development Authority. Truck drivers make an average of $70,000 to $80,000 a year.

Taco John's, a Western fast-food chain, has increased its pay from $8.50 an hour to $15 an hour in Williston to hold on to its workers during its busiest shifts. It's also trying to keep pace with competitors, including the Subway and Hardee's down the street, said general manager Christie Smith. The Taco John's currently has more than 15 open positions and Smith said she has only turned down one applicant this year, "because he just looked too scruffy."

If a Taco John's employee refers a friend for a job, and that friend is hired and works there at least six weeks, the employee is given a $100 bonus, and the new employee gets $150.

Heather McLaren and her boyfriend came to Watford from Fargo about a year ago. She makes $10 an hour at a local gas station and convenience store, and her boyfriend works in farming and makes $15 an hour -- up from $9.75 an hour in Fargo.

The pay bump was even bigger for Nathan Pittman, who was thinking about retiring from the trucking company he owned in Indiana, but put his plans on hold when he heard about the boom.

Pittman quickly landed at a trucking company in Watford making $20 an hour with "a lot" of overtime. In all, his salary more than doubled to about $2,225 a week in Watford.

"You can make at least a thousand dollars a week more here than anywhere else in the country," he said.
Confessions of extreme penny pinchers

Pittman was so optimistic about the opportunities in the town that he is now helping struggling companies from other parts of the country set up shop in Watford.

"There's not a business you can start in North Dakota right now that wouldn't make it," said Pittman.

Gene Veeder, executive director of McKenzie County Job Development Authority, which includes Watford City, said he gets calls every day from developers wanting to start housing projects. But for now, good luck finding a place to live.

Among the inconveniences the boom has caused for locals -- including a higher cost of living, more traffic and higher turnover rates among businesses that lose employees to the oilfields -- there's a huge housing shortage.

"It's been absolutely crazy lately -- we just can't build fast enough," said Shawn Wenko, workplace development coordinator for the city of Williston. "We've probably seen 2,200 housing units come online this year, but we probably have demand for more than 5,000."
Why you can't find a job

Wenko said one-bedroom apartments can run at around $1,500 a month, while two to three bedroom apartments are often around $3,000. Local hotels and motels are at 100% occupancy. Some companies have cashed in on the low housing supply and have built more affordable workforce units, known as "man camps", which are basically clusters of dorm-style trailers that house workers.

If you're looking for some extra cash, you could really make a killing right now by bringing an RV to the Bakken area and renting it for $2,000 a month, Pittman said.

"If you were to come up right now, you would see campers stuffed in about every corner, people sleeping in their cars in the Wal-Mart (WMT, Fortune 500) parking lot and tents popping up here and there," said Wenko. "It's best to secure housing before you come here, or else you'll be staying in your car for a while too -- and North Dakota winters tend to get pretty cold."

You'll also need to be ready to get dirty. Pelton said he sees a line every morning at the public restroom full of people waiting to sponge-bathe themselves in the bathroom sinks. Pelton even had to put a lock on the bathroom in his own restaurant because so many people were sneaking in to "wash up".

'I can't flip this house'

By Les Christie

NEW YORK (CNNMoney) -- Buy a home on the cheap and flip it for big profits? That dream is all but dead.

Sales of homes to investors have dropped by more than half over the past five years.

Plus, the number of those investors who quickly sell off those homes -- the flippers -- has fallen even faster.

This July, investors flipped only 50% of their purchases, down from 75% a year earlier, according to Tom Popik, research director for Campbell Surveys, which tracks housing trends for major banks and government agencies. They held onto the rest to rent out.

David Hicks, president of HomeVestors, the "We Buy Ugly Homes" company, says his clients are now much more likely to buy rentals than to flip -- 57% more likely than two years ago, according to a recent survey the company conducted.
Affordable mansions for sale

In Phoenix, according to Tanya Marchiol of Team Investments, which buys homes for individual investors, "Everything is buy and hold -- I tell my clients 'You have to look at this as a five-year hold, at least.'"

In the Boston area, "The rental economics make more sense than flipping," said Matthew Martinez, a real estate investor and founder of Beacon Hill Property Group.

The demand for rentals there has been on the rise, with rents up about 25% from a couple of years ago. Investors can buy and rent out the homes and start earning good returns immediately.

There are limited exceptions. In San Diego, according to real estate investor Tom Tarrant, the current pickings are good. Prices in some San Diego area neighborhoods are rebounding and that makes flipping viable there. "Some of these guys are killing it," Tarrant said.

In most cities, however, just the opposite is true. Prices continue to founder, down more than 4% from a year ago, and sales volume has remained about 40% lower than during the boom.

And that could continue to hurt prospects for a full housing recovery.
Best Places for affordable homes

Most real estate investors are individuals and small partnerships who tap their own assets. They use savings, retirement accounts and home equity lines of credit for the cash they need.

Flippers can turn that capital over several times a year, but if they buy and hold, they deplete their cash and can make no new purchases.

"Cash buyers are driving the market these days," said Anthony Sanders, a professor of real estate at George Mason University. "Eventually, they'll run out of cash."

When that happens, they'll stop buying, reducing demand for homes, especially the distressed properties that are such a burden on the market these days.

Sunday, 25 September 2011

Is Market Replaying Decade of the 1930s?

by Mark Hulbert

Commentary: March 2009 low might be analogous to July 1932's

Playing a script from the 1930s?

If we only could be so lucky ...

Some in the investment arena have been drawing analogies to the 1930s for several years now, of course. While such speculation died down somewhat when the market was behaving well in 2010 and early this year, it has returned with a gusto in recent weeks, owing to the stock market's extraordinary weakness — including another 3.5% decline on Thursday of this week alone for the Dow Jones Industrial Average (^DJI - News).

But drawing analogies is more of an art than a science, especially when you are picking and choosing from a decade like the 1930s. Contrary to the popular imagination, which regards that decade as one unremitting horror show, the 1930s actually contained one of U.S. history's most powerful bull markets.

So, depending on how you draw an analogy between today's market and the 1930s, you can paint either a very bullish or an extremely bearish picture.

Let's take a close look at the bull market that began on March 9, 2009. Through the market's high this past spring, the Dow had gained close to 100% in a little more than two years' time.

Is there any rally during the 1930s that comes close to being analogous? Some have suggested the one that began in November 1929, which basically was little more than a dead-cat bounce following the stock market crash in September and October of that year. But that rally lasted just five months, during which the Dow rose just 48%.

I admit that I'm not an expert in the analogy-drawing department, but that rally that began in late 1929 does not appear to be very analogous.

Another rally that is perhaps more comparable is the one that began in July 1932. It lasted nearly five years, and during it the Dow more than quadrupled.

The accompanying chart superimposes on that mid-1930s rally the Dow's progress from the March 9, 2009, low until now. Within the acceptable tolerances of analogy-drawing, I'd say the market over the last two and one-half years is not that far off.

And, if this is the script the market is indeed playing out, a huge rally is in store over the next couple of years.

Is this analogy-drawing little more than shameless data mining? Probably not. I engage in it for this column simply to counter those who, equally shamelessly, try drawing their own analogies to the 1930s in order to reach bearish conclusions.

From a contrarian perspective, however, the analogies to that decade that the bears love to draw do have significance. It indicates just how robust is the wall of worry that advisers choose to draw an analogy to the very worst of the 1930s — when they just as easily could do so in another way and reach a quite bullish conclusion.

And, as we all know, bull markets like to climb a wall of worry.

Mark Hulbert is the founder of Hulbert Financial Digest in Annandale, Va. He has been tracking the advice of more than 160 financial newsletters since 1980.

How to Protect Young Investors From a Baby Boom Bust

Are Generation X and Generation Y investors ready for a baby boom beating?

As the first wave of that pig-in-a-python generation — the 79 million Americans born between 1946 and 1964 — move into retirement, experts warn a boomer stock sell-off could cause equity valuations to plummet, likely sending the portfolios of young investors into a tailspin.

"The peak of the valuation in U.S. equities was 10 years ago," says T. Doug Dale Jr., an adviser with Security Ballew Wealth Management in Jackson, Mississippi. "Valuation levels are coming down. You have a lot of baby boomers selling off assets as they need to liquidate for retirement and that will further exacerbate the decline in valuations."

Researchers from the San Francisco Federal Reserve recently said that demographics actually point to a bearish trend in stocks. Aging populations create headwinds in the market, they said after studying the link between demographics and asset prices.

The Fed researchers looked at the ratio of investors aged 40 to 49 (those likely trying to build equity) to those aged 60 to 69 (those likely to be shifting allocation toward safer investment vehicles such as bonds).

They then compared this ratio to the year-end price/earnings ratio from 1954 to 2010 and found a strong correlation between shifting demographics and stock prices. Their results spell bad news for a full market recovery:

The model-generated path for real stock prices implied by demographic trends is quite bearish. Real stock prices follow a downward trend until 2021, cumulatively declining about 13 percent relative to 2010. The subsequent recovery is quite slow. Indeed, real stock prices are not expected to return to their 2010 level until 2027.

Preparing for the Worst

Not all younger investors are fleeing in panic.

"I'll probably just ride it out — if it's not great at first, we probably won't be pulling much out anyway," says 30-year-old Ruth Recktenwald, a Silicon Valley semiconductor technician. "If we take a loss, then we take a loss." Recktenwald and her husband annually invest in their 401(k)s, IRAs and Roth IRA accounts, and allocate their money to nothing riskier than broad-based index funds. They're following the traditional advice that young investors should aggressively seek returns, allocating most of their portfolios in equities.

But some people, like David Hefty, CEO and co-founder of Hefty Wealth Partners in Auburn, Indiana, say that traditional buy-and-hold strategy is out of whack with changing demographics. As a Gen X investor himself, Hefty, 34, says what worked for the baby boomers won't work for the generations of investors to come. He tells his clients to move their money around more aggressively.

"When you look at what happened with the boomers, you see that when we came out of a recession in 1982 there was an unprecedented bull market," Hefty says, adding the parents of Gen Y investors are stuck in the 1990's with a buy-and-hold mentality they're likely passing on to the next generation.

But research suggests Generation Y investors may already be shying away from equities, adopting a conservative approach thanks to the psychological baggage of the Great Recession. A recent survey by MFS Investment Management shows 40 percent of Gen Y investors said they agreed with the statement: "I will never feel comfortable investing in the stock market," while another 30 percent said protecting principle was their primary investment objective.

"Will that generation wind up being more conservative than the generations ahead of it? I would say yes," says Dale. "The generation that went through the Great Depression is what they're going to wind up looking like."

Advisers tell younger investors to steer a path between abject fear of stocks and blind allegiance. Here are some of the ways they say Gen X and Gen Y can build their own fortunes without getting slammed when the older folk sell.

Go Tactical

Tactical asset allocation (TAA) is an active-management portfolio strategy that involves shifting your money among various asset classes in response to market conditions. It flies in the face of the traditional buy-and-hold strategy that boomers know and love.

"In your 401(k), do your homework and find a tactical management solution," says Hefty. "Push your HR department to make sure you get what you need to be successful."

Hefty believes his firm's tactical strategy will allow his clients to not only protect assets, but also to make money in a secular bear market as they did in the 2008-2009 financial crisis. "We're 100 percent in cash right now and this is fantastic for us," he says. "When things really start breaking down in the next few months, we'll probably start shorting the market to make money on the way down. Once it starts to bottom out and everyone in the country pulls out, we'll start buying stocks and ride it back up."

A word of caution for investors: Not all tactical managers are alike, and over the years there has been a lot of academic research pointing to the difficulty, if not impossibility, of profitably timing the market. Timing is everything in a tactical strategy, so it amplifies the risks of active management. In other words, the more flexibility your manager has, the more room for error. Also, active trading could increase fees and taxes.

Don't Be Scared, Be Greedy

The most famous and wealthy investor in the world — Warren Buffett — may have been on to something when he said, "We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful."

When other investors are panicking, don't fall prey to a herd mentality, says Frank Fantozzi, president and CEO of Planned Financial Services in Cleveland, Ohio. "Whenever there is chaos, there is opportunity," he says.

When you look at the psychology of investing, people are often their own worst enemy - buying when the market is rising and selling off when they think it's tanking. "It's been proven time and time again that when you look at the average rate of return for a mutual fund and compare it to the average individual investor return, the average investor return is usually less than 50 percent" of the funds' return. says Fantozzi. So, don't trust your gut. Do the opposite.

Depending on your investment time horizon, a plummet in stock prices may be an ample opportunity to get greedy and load up on cheap equities, says Dale. "You have to be willing to buy more when stocks are down," he says. Even if your own holdings take a hit, if your timeline is long enough you should bounce back, cashing into the time-value of your investment.

Think Global

The U.S. is not the economic powerhouse it used to be. In the 70's, the U.S. made up two-thirds of global GDP. Now, it sits around one-third, says Dale. "What that means is today, if you limit yourself to just investing domestically, you're limiting yourself to a third of the world's investing opportunities," he says.

Developing countries in the emerging world are growing at higher growth rates. As the global economy rebounded in 2010, lower-income countries (per capita incomes with less than $30,000 per year) averaged 6.6 percent growth compared to high-income countries (more than $30,000) that averaged 2.9 percent growth. Asian countries currently account for one-quarter of the world's middle class, but by 2020 that portion will likely double, accounting for more than 40 percent of global middle class consumption, according to the Organization for Economic Co-operation and Development (OECD). That's another reason, Dale says, to hold assets outside the U.S., particularly in emerging markets.

The demand from the new middle class will not only bolster global equities, but will likely help domestic valuations as well. "The people on a global level who are starting to invest, the people in Asia and South America, are developing a sense of middle class. Where are they going to put their money? There is going to be some level of demand from that group, even if it's 10 to 15 percent of what the U.S. is," says Fantozzi.

Bottom line? Be an active and engaged investor. If you sit on the sidelines, you'll likely miss an opportunity to either save your bacon or make some. "Any time you go through economic hardship, money is in motion. Those who are standing on the tracks lose all their money and those who are standing off to the side, collect all the money. During these types of times, think of who you know - your family, friends, colleagues — more of them will stand on the tracks than will step to the side," Hefty says.

Copyrighted, Reuters Limited. All rights reserved. Republication or redistribution of Reuters content is expressly prohibited without the prior written consent of Reuters. Reuters shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon.

Thursday, 22 September 2011

Be ready for downturn, World Bank tells developing nations

By Pascal Fletcher

WASHINGTON (Reuters) - Developing countries can prepare for the threat of a global recession by improving policies to generate growth and jobs, diversifying economies, bolstering their banking sectors and readying social safety nets, the World Bank's top economists said on Wednesday.

Bank chief economist and senior vice president Justin Yifu Lin told a round table in Washington that the sentiment in the international economic community had abruptly changed from a feeling of general confidence in global recovery six months ago to "alarming uncertainty" now facing policy-makers.

"We once again are seeing the financial markets in the world in turmoil," Lin said, adding that the creditworthiness of several countries "on both sides of the Atlantic" was now in question, fuelling the general crisis of confidence.

This was a worrying scenario for the world's developing countries, as investors and consumers across the globe might now be inclined to hold back out of caution.

"We still hope for the best," Lin said, but he added: "For the developing countries, it is very important for them to prepare."

Lin, and the World Bank's top economists covering regions from East Asia to Africa and Latin America, warned that while many regions had weathered remarkably well the 2008-2009 financial crisis, this meant that their economic defences might not be as sturdy now to face another global recession.

"The fiscal cushions are not as strong anymore as they were in 2008," Augusto de la Torre, the bank's chief economist for Latin America and the Caribbean, told the round table on "Developing Countries and the Global Economic Outlook".

Lin urged developing countries to gird their economies for another downturn by identifying new drivers of growth, overhauling banking regulations to protect their banking sectors against transmitted financial shocks and fine-turning policies to sustain productivity and job creation.

Shanta Devarajan, chief economist for Sub-Saharan Africa for the World Bank, said African governments should ready "safety net" policies to help cushion the poorest sectors of their countries against the shortages and hardships that could result from a global economic downturn.

But they should avoid the temptation to slap on price controls, he added.

"The big challenge is how to diversify our economies," Devarajan said, noting the dependence of many African economies on primary commodities exports, especially to Europe.

South Asia had suffered only a "glancing blow" from the previous 2008 crisis, and had recovered quickly, said the bank's chief economist for that region, Kalpana Kochhar.

But she said the region's countries urgently needed investment to help absorb the huge numbers of workers entering the labor force. "They need to focus on capital accumulation to generate jobs," she said.

Bert Hofman, the World Bank's chief economist for East Asia and the Pacific, including China, said that while growth predictions for that region had been ratcheted down a few notches to reflect the current global uncertainties, they were still high, close to 8 percent.

"In case really bad weather hits, the region still looks pretty good in terms of fiscal space," he said.

De la Torre too saw his Latin American region in relatively resilient form with "improved shock absorbing capacity" to confront a downturn. However, Central American and Caribbean economies in the region were weaker.

In the Middle East and North Africa, oil-importing countries faced risk to their trade and remittances from Europe if the sovereign debt crisis in that continent worsened.

At the same time, the ability of oil-exporting countries in the region to respond to an international economic crisis could be reduced if oil prices declined, said Caroline Freund, the World Bank chief economist for Middle East and North Africa.

Business leaders 'still optimistic about prospects'

An overwhelming majority of business leaders worldwide are confident of their companies' prospects despite the economic jitters, a study by global law firm Allen & Overy found.

This upbeat outlook could be due to globalisation, which allows capital to flow more freely to countries where growth remains strong, said Mr David Morley, senior partner at Allen & Overy, at a briefing on Wednesday.

'There's been a huge rise, particularly over the last four to five years, in the number of markets in which companies are operating,' he said. 'Companies are saying that there are more than 100 markets that they are looking at in terms of growth opportunities. The global economy has opened up; it's given businesses more choices.'

In the study, carried out between July 4 and Aug 26, about 96 per cent of the 1,000 business leaders surveyed said they were 'very or reasonably confident' about their businesses' prospects in the next 24 months.

The rising cost of raising a child

By Jessica Dickler

NEW YORK (CNNMoney) -- Forget designer strollers and organic baby formula, just providing a child with the basics has become more than most parents can afford.

The cost of raising a child from birth to age 18 for a middle-income, two-parent family averaged $226,920 last year (not including college), according to the U.S. Department of Agriculture. That's up nearly 40% -- or more than $60,000 -- from 10 years ago. Just one year of spending on a child can cost up to $13,830 in 2010, compared to $9,860 a decade ago.

"Everything is more expensive and each family makes its own set of trade-offs," said Ellen Galinsky, president of the Families and Work Institute in New York. "Many parents are working longer hours, or another job, and they are giving up time at home. It's a complete catch-22."

From buying groceries to paying for gas, every major expense associated with raising a child has climbed significantly over the past decade, said Mark Lino, a senior economist at the USDA.

Food prices, in particular, have weighed on parents' budgets as rising demand for commodities like corn and wheat, along with other factors such as rising oil prices, drought and floods, have made even a box of cereal a pricey proposition.

Another notable increase has been the cost of transportation, which soared as a result of rising gas prices. Between 2000 and 2010, consumers paid an average of 85% more per gallon at the pump, according to AAA.

The battered economy has also taken a toll, of course. Many employers scaled back or even did away with medical coverage in recent years, leaving many families to cover that bill, said Lino. At the same time, costs for doctors visits, medications and other health services also climbed. As a result, health care costs for families with children rose 58% over the decade, he said.

All of this comes at a time when incomes are shrinking and unemployment is near an all-time high. Over the past decade, median household income have fallen 7%, according to a recent report from the Census Bureau.
The child care crunch

The early years are among the toughest for parents who must find a way to afford all of those costs, plus child care.

"It takes half of my paycheck to pay for my child care -- you start to feel like, Is this even worth it?" said Anna Aasen, a mother of two from Roseburg, Ore.

Although housing generally represents a family's largest expense, putting more than one child in day care tips the scales.
The anti-baby boom: Why the U.S. birth rate keeps falling

In 2010, the cost of putting two children in child care exceeded the median annual rent payments in every single state, according to a recent report by the National Association of Child Care Resource & Referral Agencies, or NACCRRA.

"It defies logic," said Linda Smith, NACCRRA's executive director. As more families are priced out of licensed child care services, the health and safety of those children are put in jeopardy, she said.

For Stephanie Serafini, 38, licensed day care for her two children comprises about 30% of her $39,000 annual income. Serafini pays a particularly high rate for care because her oldest son was diagnosed with Asperger's and ADHD.

It is by far Serafini's largest monthly expense, but also the one with the least flexibility. "Other bills don't get paid," she admitted. "If you don't have day care you don't work."

For many parents, choosing to work and pay for child care is often a difficult trade off when they might otherwise stay home.

"The sad truth is, when you weigh the cost of child care and the cost of my wife driving back and forth to work it comes out to an extra $2 to $3 an hour," Ben Hammond, 31, said of his wife's decision to return to the workforce after their second son was born. "But we can't really live without that."
Saving strategies for parents

"[Parents] are overwhelmed," said Lule Demississie, managing director of retirement and investment products at TD Ameritrade.

The first step is to tackle the rising cost of raising a child is to start saving, she said. Stash some cash in a regular brokerage account, which will likely offer a higher return than traditional savings but can also be easily accessed to cover impending expenses, recommended Demississie.

"If you have expenses a year or two out, there are ways you can save that are more efficient than your savings account," she advised.

For longer-term needs, Demississie suggested finding tax deferred ways to save for the major bills, like employer-sponsored flexible spending accounts for health care and child care and Coverdells for education expenses or 529 plans for college, which allow you to save pre-tax dollars.

Ginger Ewing, a financial adviser with Ameriprise Financial, says new parents often ask her about saving for college but she urges them to think about more pressing needs like day care first. "If you have to choose," she said, "start there."
Poverty rate rises in America

Ewing says it's those immediate needs that are often the most underestimated. She recommends holding at least $5,000 to $7,000 in a savings account or CD to cover the big expenditures that start even in the first year.

For those unable to set aside that kind of cash, Rita Cheng, another financial adviser, strongly advises couples to start slowly and do what they can.

"If all you can do is save $50 a month, that's fine. It's not the amount, it's the action that matters and sticking to it," she said.

Still not putting volunteer work on your resume?

If not, new research from LinkedIn shows why it's time to start.

By Anne Fisher, contributor

True, you didn't get paid to streamline the database at the local Red Cross office, or organize that huge fundraising auction for Oxfam, or put your accounting skills to work at your church. So it doesn't really count -- right?

Not so fast. According to a new survey from LinkedIn (LNKD), 89% of U.S. businesspeople have significant volunteer experience. Yet only 45% include it in their resumes.

The same report tells why leaving it out is a mistake: 41% of hiring managers say they consider free labor for a good cause to be "equally valuable" as other experience, and one in five has hired someone for a paying job because of his or her volunteer work.

"Professionals often have the misconception that volunteer work doesn't qualify as 'real' work experience," observes Nicole Williams, whose title at LinkedIn is connection director. "But in the current hypercompetitive job market, when hiring managers or potential business partners are comparing candidates, volunteer experience can be the deciding factor that makes you stand out."

Williams adds that volunteer work is a great way to rub elbows with "driven, conscientious professionals" who often make great references in a job hunt. "The most successful people dedicate some of their efforts to a cause that extends beyond themselves, and hiring managers are well aware of this," she says.

For all of those reasons, LinkedIn just introduced a feature that makes it easy for the site's 120 million members to include a "Volunteer Experience & Causes" section in their LinkedIn profiles. Adding the information to resumes as well would be a smart move.

How to Handle Awkward Money Situations

If you've ever had a family member ask you for a loan or been asked to split the bill when all you got was a salad, then you are familiar with the awkwardness that can surround money and relationships. In Isn't It Their Turn to Pick Up the Check?, Jeanne Fleming and Leonard Schwarz offer strategies for dealing with the most cringe-inducing scenarios. U.S. News spoke with Fleming and Schwarz about how to handle relatives who ask for loans, splitting the check at the end of the meal, and when, if ever, to lie about money. Excerpts:

Does lending money within families usually hurt or help relationships?

Forty-three percent of the people we surveyed told us that when it came to the largest amount of money they'd ever lent a friend or relative, they were never repaid in full. Moreover, 27 percent said they never got so much as a dime back. That's a lot of people being stiffed and, in turn, a lot of resentment being created. And what these statistics don't capture, of course, is the amount of effort many of the people who weren't stiffed had to put into getting repaid--a chore no one enjoys.

When a friend turns out to be less than honorable about a loan, at least you have the option of no longer socializing with him or her, if you choose. But when the people who stiff you are family, you may have to suffer through, say, a Thanksgiving dinner at which they brag about dining at a new upscale restaurant--a place you feel they had no business patronizing until their long-overdue debt to you had been repaid.

So, to answer your question: While there is often good reason to lend money to a relative and real satisfaction to be gained by helping out a loved one, the fact remains, you are entering a relationships minefield when you do so.

It seems as if a lot of questions people have revolve around a hesitancy to be honest because it might hurt someone's feelings. You often advocate for honesty, but when, if ever, is it best to fudge the truth?

You're absolutely right: We're all for honesty, for being direct. But more fundamentally, we're for sticking up for yourself--whether it's by asking for a loan to be repaid, by refusing to let your sister help herself to all of your mother's nicest things after the funeral, or by explaining to your neighbor that it is a problem that his new fence is two feet over the property line.

Not that there aren't occasions when there's good reason to let things go. Let's say, for example, your brother, with whom you are close, borrows your car and puts a large dent in the hood--a dent he is unconscionably slow in having repaired. If you can afford to pay for the repair yourself, you may be better off to do just that and stop being mad at your brother. That said, you should also stop lending him your car.

What's the most common awkward financial issue that couples face within relationships?

Conflicting expectations. Consider this: Some people believe you should never charge interest on a loan to a family member, while others see nothing wrong with doing so. Some people expect the parents to always pay when the family goes out to dinner, even when the children are working adults, while other people do not. And some folks believe the only fair way to divide up an estate is evenly among the children, while others think it's appropriate to consider how loving, supportive, and helpful each child has been.

Conflicting expectations such as these are common. And since courtship typically doesn't involve vetting your spouse-to-be on such issues, an otherwise happy marriage can run into real turbulence when, for example, the husband discovers that even his wife never expected her brother to repay the $1,000 the couple lent him.

Another trouble spot is secrets. It may be that the wife is slipping money to her family and not telling her husband. It may be that the husband is a spendthrift and the wife feels she needs to hide her bonuses from him. Or it may be that the husband is secretly investing in the stocks of companies that he knows his wife feels are not socially responsible. Whatever the secret, when it comes to light, the person who was kept in the dark feels betrayed, and a sense of betrayal is, need we say, never good for a marriage.

The arrival of the bill at the end of a meal can be very awkward. What should you do when your dining companion insists on treating you, but you don't really feel comfortable with that? What about when you ordered a cheap meal and no alcohol, and your martini-downing friend wants to split the bill evenly?

There are three rules for dealing with a money-and-relationship problem: Nip it in the bud. Learn to say no. And don't lose sight of who the good guy is--you, not your friend or relative who's trying to make you feel petty for caring about money.

All three apply in these dining dilemmas. In particular, if you don't want a friend to treat you, say "No." Or make that "No, thank you. It's nice of you to offer, but I insist on paying for my own meal." If he or she refuses to take no for an answer, the next time you go out to dinner together, take the waiter aside at the beginning of the evening and tell him you want the check delivered to you. Then insist on paying it. If you like, you can tell your friend as you do so, "This time it's my turn. But in the future, why don't we just split the check?"

Why is this important? Of course, it's fine to allow someone the pleasure of buying you a meal. But if you allow that person to treat you to every meal, you are assigning to your friend the higher status that comes with being your patron. That's a dynamic best nipped in the bud.

As for the opposite type of problem--that is, the friend who wants you to pay for half of his martinis and chateaubriand while he pays for half of your iced tea and pasta primavera--the solution once again is to speak up. You won't be the first person to reach for the dinner tab and say, "It looks to me like your share is about $80 and mine is about $40." Nor will you be the first person to request separate checks or, if he does all the drinking, a bar tab separate from the food tab.

Saturday, 17 September 2011

First Person: Recession Round Two?

Consumer spending is down, unemployment remains high, and job growth has slowed to a crawl - is the U.S. slipping into another recession? To find out what everyday Americans think about the potential for another downturn, we asked our contributors to tell us how their own financial situations are changing and how they're getting ready to face another recession. Below are some of their stories.

Keeping our costs down

"Right now we could afford to pay a little more rent so we could live someplace where our neighbors are an acre away, and we could burn wood to keep warm. That is our dream. In case work dries up, though, we feel more secure keeping our rent as low as possible and saving the extra income so we have it to buy food some day." - Cherise Kelley


You say recession, I say opportunity

"I could be like everyone else, throwing my hands up in the air and shrugging my shoulders while balancing my checkbook. I could stand in line at the grocery store and shake my head at the rising prices. I could break out into a rendition of 'Amazing Grace' at the gas pump, but I won't. Instead of buying into the doom and gloom, I'd rather take this recession by the horns and create opportunity." - Shauna Zamarripa


Digging in for the storm

"Regardless of what the TV tells us, we've accepted the fact that there will be no pots of gold at the end of any economic rainbows. Small-business owners have always been among the hardest-working members of our society. They are the backbone of our economy. Never before in recent times have we been faced with such uncertainty. Business was always hard. But now it's not so much a matter of increasing our personal finances or conducting business as usual. It is now a matter of survival.

"We've continued to do whatever we have to do to find work. No honest job was beneath us. We took whatever jobs we could get hired to do regardless of how overqualified we were. If the job paid and would hire us, we went to work." - Emilia Zs Rak

We're not making the same mistakes

"The recession that began in 2008 affected my family in a big way. My husband was laid off twice between 2008 and 2010. We are only now recovering from the impact of the recession. We never want to face the hardship we met during the last recession.

"Sticking to the budget we maintained during the recession allows us to keep our family afloat, while cutting out frivolous purchases. This also means that we are not getting used to any extra luxuries that we would not be able to afford, should another recession hit." - A.C. Haury

This time I have a plan

"During the last recession in 2008 I was all over the place, just like the stock market. I didn't really know what to do. Invest? Not invest? Hold tight?

"This time I know exactly what I'm going to do, because I'm already doing it. I'm not changing any of my long-term investments and am spending less. It's as simple as that. But what I have changed is my attitude. I'm not panicking like I was in '08, because I have a plan, and I'm sticking to it." - Marie Dubuque


Working, but not taking it for granted

"I have a job that I believe will continue for the foreseeable future. Being employed makes a huge difference in how a recession is processed. I don't want to say that I operate in a state of paranoia, but I try not to take employment for granted. Instead, I operate under the assumption that I could lose my job for reasons beyond my control.

"Dealing with a recession still comes down to living life and trying to enjoy those things that are positive. Many people are struggling financially, but for now I am going to prepare for another recession by working hard and not getting too anxious." - Todd Pheifer

We've already changed

"It's been a rough couple of years for our family, and the news that another recession is looming on the horizon has us concerned. Though we started the year with money in the bank, we had a series of costly emergencies that not only wiped out our savings but also drove us deeper into debt. For our family, preparing for another recession means aggressive cost-cutting, working additional jobs, and plowing extra cash into debt reduction. In the past couple of months, we've made a number of lifestyle changes in anticipation of tougher times ahead." - C. Jeanne Heida


We're still spending

"A recession is not an isolated event, and recovery can't be a one-man show either. We've established bartering networks. Neighborhoods, churches, or local associations are great places to start. My neighbor often loans me her car (my daughters usually have mine), and in exchange I pick up her son after school. She saves on after-school care, and I avoid expenses for a third vehicle.

"It is important to remember that recession recovery is impeded when people stop spending money. Wise discretionary spending will not only boost the local economy, it can also provide a much needed emotional boost in dark days." - Martha Fry

Thursday, 15 September 2011

Euro zone cannot be saved, says Mr Lee Kuan Yew

Collapse will be painful, but one-tier Europe too hard to achieve, he says

By Rachel Chang & Teo Wan Gek

Former Prime Minister Lee Kuan Yew believes the euro zone cannot be saved, although the collapse of the currency union will be 'a very painful business'.

Speaking at a dialogue on Wednesday to mark the seventh anniversary of the Lee Kuan Yew School of Public Policy, he said European leaders will try very hard to keep the euro zone from collapsing as this would be 'an admission that their aspiration of one Europe is not achievable'.

'But I do not see it being saved. But they'll try and keep it going.'

He was speaking in response to a participant asking if Singapore would buy the bonds of debt-ridden European countries. The participant was referring to reports that Italy had asked China to buy its bonds.

5 Steps to a Secure Retirement

It's time to size up your plan. You may be in better shape than you think.

If you're like many Americans whose retirement savings took a major hit during the market meltdown a few years ago, you're probably wondering if you'll ever be able to retire. The eye-popping stock market drop in early August and the downgrade of the U.S. credit rating no doubt add to your jitters. Or maybe investment performance isn't your major worry. A spate of unemployment or depressed home values can make yesterday's vision of retirement seem like an im­possible dream.

Don't be discouraged: Recent statistics on recovering 401(k) and IRA balances suggest that many savers are already back on track. Plus, "Americans have proved themselves to be both resilient and resourceful," says Jay Wintrob, president of SunAmerica Financial Group, which recently released its "Retirement Re-Set" study. More than 80% of respondents to the survey said they learned important lessons in the past several years. "They are course-correcting—intending to work longer, save more, spend less and adjust their lifestyle expectations," Wintrob says.

Laraine Schigotzki is a classic example. With successful careers in commercial real estate, property management and corporate sales, Schigotzki, 46, was surprised when she became a victim of a faltering economy. "I never thought I'd get laid off, but now I look at it as a blessing," she says. After losing her job in 2008, Schigotzki enrolled in a U.S. Department of Labor retraining program to become a licensed skin-care specialist and went on to become certified as a holistic health professional. In 2010, she opened To Your Health Holistic Spa and Wellness Center, in Brick, N.J., where she offers organic skin and body treatments, health and nutritional counseling, and yoga classes.

Schigotzki's retirement savings are on hold while she builds her business, and she knows she has a lot of catching up to do. But she's banking on her new business, rather than relying on the stock market alone, to fund her retirement. "I am optimistic, and I'm not stressing about my future finances," she says. "I am putting my heart and soul into this, and I know I'll come out on top."

Nancy and Al Guido hoped to retire to their hometown of Chicago after living in Dayton, Ohio, for 17 years. But the collapse of both their investments and their home's value in 2008—a year before their planned retirement date—blew away their plans to buy a house in the Windy City. They didn't let their initial disappointment stop them, however. They turned market forces into an advantage by shifting their home search to low-cost Alabama, where they scooped up a beautiful lakefront home near Birmingham at a bargain price. "We couldn't have afforded this house a few years earlier," says Al, 62.

The past few years have demonstrated that being flex­ible like the Guidos is an essential ingredient in retirement planning during these uncertain times. Follow our five-step guide to make the new normal work for you.

Step 1 | Do a Reality Check

The main question on everyone's mind is, Will I have enough money to retire? More than half of those who participate in an employer-based retirement plan say that they have never taken the time to estimate how much they need to save for retirement. If you don't have a savings target in mind, it's tough to determine whether you are on track, says financial planner Philip Lubinski, head of the Strategic Distribution Institute, in Denver. Figure out your target number and whether you're saving enough to reach it by the time you want to retire.

"Some may be assuming they are off-track, when in fact, they aren't—or not as much as they think," says Lubinski. The answer to the burning question of Will I have enough? is determined by several factors, including when you plan to retire, how much income you need from your savings, how many years you'll need that income and the rate of return you can expect to achieve on your investments.

If you discover a shortfall between the amount you need to save and the amount your current account balance and continued savings will be worth by your target retirement date, then you'll have to make some tough choices. You could save more, work longer, chase higher returns or plan to throttle back on your retirement lifestyle—something most people hope to avoid.

"Americans are recalibrating their retirement dreams," says Carrie Schwab-Pomerantz, president of the Charles Schwab Foundation, which promotes financial literacy. "They don't want to buy a winery when they retire. They just want to keep living the life they've been living." J. Graydon Coghlan, a financial planner in San Diego, has observed a similar rethinking of retirement goals among his clients. "Instead of buying a second home, I see a lot of people fixing up their existing home to make it their retirement dream house and then just renting a place for a week or two in the desert or the mountains," says Coghlan.

Step 2 | Play Catch-Up

It's been a volatile decade for the stock market, but investment returns are not solely to blame for the size of your retirement account. The main driver of account balances over time is your contribution rate. Investment returns, while important, have a less significant impact over the long term. For guidelines on how you should allocate your retirement savings at various ages, see the graphs below.

Ideally, you should aim to contribute 15% of your gross earnings to your retirement savings—including any employer matching contributions. The goal is to replace about half of your current salary, adjusted for inflation, during a retirement that could last 30 years or more. You'll probably replace another 30% or more of your current income with money from other sources, such as Social Security, a pension or part-time work, bringing you closer to 80% of pre­retirement income—generally the amount recommended to maintain a comfortable retirement.

Make sure you make the most of your company's retirement plan. According to a recent survey by Fidelity Investments, more than half of 401(k) participants say they would not be saving for retirement at all if it weren't for their company retirement plan. But economic conditions still present a challenge, with 54% reporting that they would contribute more to their 401(k) plan if they could. If you can't max out your contributions immediately, contribute at least as much as needed to capture your employer's matching contribution if you have one and work toward saving more in the future. In 2011, you can contribute up to $16,500 to a 401(k) or similar defined-contribution plan, such as 403(b) plans used by schools and hospitals, 457 plans available to state and local workers, and the Thrift Savings Plan available to the military and federal employees. Workers 50 and older can make additional catch-up contributions of up to $5,500, for a total of $22,000 in 2011.

If you don't have access to a retirement plan at work—or even if you do but you want to stash more money away—you can contribute up to $5,000 to an IRA in 2011, or $6,000 if you are 50 or older. You can choose a traditional IRA, which offers an upfront tax deduction for workers who meet the income requirements. Or you can choose a Roth IRA, which has no upfront tax deduction but provides tax-free income in retirement. Self-employed business owners can contribute up to $49,000, depending on income, to a SEP IRA for 2011, or up to $54,500, including catch-up contributions, to a solo 401(k).

Step 3 | Work Longer

The number of Americans age 55 and older in the workforce is now at an all-time high. Judith Randall, 72, of Chicago, is one of them. She describes her seasonal job as a guide on the city's river cruises and bus tours as "the best part-time job in the world." The retired legal secretary puts all her research skills to work, uncovering fascinating facts to share with her audiences. But the bottom line is that she needs the money. She relies on her earnings to supplement Social Security in order to pay her bills, and she squirrels away her tips for the winter, when there's no work. "I didn't save enough when I was working as a legal secretary," she says. "I have to work as long as I can."

Unfortunately, working longer may not be an option for some. More than 40% of current retirees stopped working earlier than they had planned, largely for reasons beyond their control, such as a layoff or health problem. And with more than two million people age 55 and older unemployed, the prospects of finding full-time work in their field are dim.

"More and more baby-boomers over age 50 are realizing that when they lose their corporate job, the only way that they can continue to do the work they were doing is to run their own business," says Jeff Williams, founder of Bizstarters.com. He offers a free "Boomer Biz Starter Kit" on his Web site, which includes an idea-generator guide to show how to use work and life experience to find good business ideas and how to evaluate the financial prospects of those ideas.

Step 4 | Create Retirement Income

One of the greatest challenges in retirement is figuring out how to convert a pile of savings accumulated over a lifetime into a monthly stream of income that you can't outlive. The Government Accountability Office made headlines recently when it recommended that middle-income Americans—particularly those without a traditional pension—consider using up to half of their savings to buy an income annuity as a way to avoid the risk of outliving their money.

The drumbeat for guaranteed retirement income has been building during the past few years. When asked which is more attractive, a financial product providing a 4% return that is guaranteed not to lose value or one with an 8% return that is subject to market risk and loss of principal, 76% of respondents chose the guarantee, according to Allianz Life Insurance Co. "This new study confirms that a 'new normal' mindset has dug deep roots in the minds of boomers," says Allianz Life president Gary Bhojwani.

Capitalizing on the demand for secure income, New York Life Insurance Co. has launched a new product. Guaranteed Future Income Annuity enables individuals to create a personal pension by investing a minimum of $10,000 initially and setting a future date to begin receiving guaranteed income payments for the rest of their life.

"The concept of a pension is certainly not new, but paying for it with cash rather than years of service is," says Chris Blunt, executive vice-president of retirement income security for New York Life. Blunt, 49, bought the first contract, investing $100,000 with the guarantee that he will receive $980 per month—nearly a 12% payout—starting at age 65 for the rest of his life, with annual inflation adjustments.

Unlike immediate annuities, which are typically sold to retirees in their seventies, this deferred annuity is targeted to preretirees in their fifties and early sixties who don't have a pension or whose pension was frozen and won't provide sufficient income in retirement, Blunt says.

Other insurers are also making it easier for consumers to figure out how an annuity might fit into their retirement-income puzzle. Anyone can use Fidelity's Income Strategy Evaluator to help decide how to allocate his or her portfolio to stocks, bonds and cash. The tool also shows how buying one or more annuities can create guaranteed income and provide protection from inflation and market volatility. MetLife recently unveiled its own version, the Retirement Income Selector.

Step 5 | Delay Social Security

Among the most crucial financial choices retirees must make is when to begin claiming Social Security benefits. The majority claim benefits before their normal retirement age, passing up an additional 25% or more in monthly inflation-adjusted benefits for the rest of their lives. That can be a costly mistake—particularly for some married couples, who can increase their lifetime retirement income by $100,000 or more just by choosing the right time and method for each spouse to claim benefits.

The GAO's report on retirement income found that it is more cost-effective to delay collecting Social Security benefits until normal retirement age than to collect them early with the intention of buying an annuity later on to make up the difference. Delaying benefits until normal retirement age—66 for anyone born from 1943 through 1954 and grad­ually rising to 67 for those born in 1960 and later—means you can continue to work without forfeiting any benefits to the earnings cap limit. You can also employ some clever claiming strategies to maximize your benefits.

5 Questions Every Worker Should Ask Before Retirement

Wall Street's recent turmoil has many investors questioning whether they will have enough to retire the way they've always dreamed, or to retire at all, for that matter.

Whether your post-work life is just around the corner or far away in the distance, there's never a bad time to reevaluate your definition of retirement: what it means ideologically and financially.

"How you answer that question has very important implications about where you're going to be and what you're going to spend," says author and certified financial planner Eleanor Blayney. "There's so many demands on the dollars we thought we'd be using in our 60s or 70s. Retirement used to be a going away from the workplace. Now it has to be thought of as 'what am I going toward?'"

When it comes to retirement planning, it is important to evaluate the big picture: desired lifestyle, trips and activities to pursue and of course, financial security and retirement.

"You have to be much more active in [retirement], you're also at the point of life where you're at the maximum complexity of financial issues," Blayney says.

Deciding how much resources retirees will need and when to pull them, is tricky and people generally do a poor job of it, according to experts. Research from the Society of Actuaries shows that that 49% of retirees and near-retirees plan for 10 years or less of retirement.

A certified financial planner or money manager can help investors understand complicated tax, estate and retirement demands, but before going it's important to have a plan.

Here are five questions every investor needs to ask regarding planning for retirement:

How am I going to spend my time and how will I make it count? It's important to visualize your day-to-day retirement life in order to properly plan for it, Blayney advises.

"Where will I be and who will I be with?" she says. "Boredom can cost you. You pick up expensive hobbies. Sometimes our only job is how to spend our money and how to make it last."

Practicing retirement is a good start. Before leaving the workforce entirely, Blayney suggests knocking your work schedule down gradually and observe how you spend your money and extra free time. Take the time to try out new hobbies and pursue passions.

Do I have enough to have live comfortably and have fun? Review your retirement goals regularly. Social Security can be drawn without penalty between ages 65 and 67, depending on birth year. But Social Security can not fully fund you retirement and will require some sort of supplement either through Individual Retirement Accounts (IRAs), which can be withdrawn at age 55, pensions or 401(k) plans.

"The age at which each person can retire varies; the longer you work, the more you'll benefit from your investments and Social Security," says Anna Rappaport, an actuary and retirement expert. "Researchers at Boston College have estimated that many people have a shortfall in what they need for retirement but working two to four years longer will close the gap for a lot of them."

Be sure to evaluate your income and budget for necessities, incidentals and fun money.

"Many retirees and financial advisors assume the cost of living decreases in retirement, pointing to costs to commute, meals and wardrobe," says Mark Gianno, president of Gianno & Freda, Inc., a Boston accounting firm. "Retirees spend at least as much and often more than they did while in the workforce. Retirees have more time on their hands to pursue interests such as travel, home improvement, entertainment and hobbies."

Should I downsize? Housing accounts for about one-third of expenses for people aged 65 and older, according to the Mature Market Institute. Next on the list is transportation, taking up nearly 20% of total expenses. A lot of retirees want to keep their big place for a family to come home to for the holidays, but Blayney says moving to a smaller home in a more affordable city is a good way to stretch your nest egg.

If downsizing isn't an option, or you'd like to stay in your home forever, pay off your mortgage before retirement or consider a reverse mortgage as a way to gain extra monthly income.

Also consider downsizing big, gas-guzzling vehicles or opt to keep cars longer to avoid recurring payments.

What if something happens to me or my spouse? Consider how unfortunate circumstances could affect your lifestyle and plan for them while you're healthy: Will you want to be near your children in the event that you get sick? Live in an assisted-living facility? Will you have enough money to take care of yourself?

Plan adequately for widowhood, Rappaport says.

"I estimate that an individual needs about 75% as much to live as a couple," she says. "Most people think the survivor will be about as well off as before the death of his or her spouse, yet many widows have a decline in economic status after the death of their spouses. About 4 in 10 older women alone have virtually no money other than Social Security."

What about health care? Medicare is available to most people 65 and older, but even with government or employer-subsidized insurance, unreimbursed health-care costs associated with aging could cost as much as $200,000 over the course of retirement, according to Blayney.

Nursing homes alone can exceed $70,000 annually, Rappaport says.

Medicare covers a very large portion of acute health-care costs for those over age 65, but very little long term care expenses. And individual insurance premiums go up with age, and insurability may be lost if the purchase is delayed. Prepare for medical expenses and coverage in advance to prevent financial ruin," Rappaport says.

Gianno suggests transferring assets away from your control long before they may be forcibly spent for your care.

My three bits of advice to avoid ending up in a career disaster zone like me

Anonymous candidate

I’m looking for a new job. Over the past year I've met recruiters, spoken to friends and trawled the web to no avail. Here are the three big mistakes which I’ve made and you should avoid:

1) Avoid stagnating in the same firm

Now that I’ve been working (hard!) for almost five years in the same company, it should not have been too difficult to get a job offer. But alas, I have not even gone to a single interview.

Why? Well, because what I have done over the past five years has added little value to where I want to be. This is especially so in the current “middle child” phase of my career – I’m either too junior or too experienced for the roles that would get me ahead. I either take a plunge in salary and start from the bottom, or stay until the next recession knocks everyone around like a game of musical chairs.

2) Everything you do must boost your resume

In hindsight, this one seems so obvious. But in five years, I never paid attention to my CV. You must ask yourself everyday whether the things you do at work are actually doing anything to add value to your resume, in case you find yourself in the job market.

3) Be a fisherman, not a fish

I have met several recruiters recently. I’m not out to dish dirt on them, but I wonder whether I am the one casting for jobs, or if I am the one on the hook.

After talking to one particular recruiter, I keep getting forwarded emails from colleagues who have received a one-line email from him about how this particular job would be up their street. But more often than not, these positions are not even in the same field as the recipient.

If that’s the way that recruiters get contacts, I wonder whether that’s how they treat resumes coming their way. Perhaps they just throw them up in the wind, with many landing in the reject bin. I would have expected some greater pride in their job. It is important, therefore, to find a recruiter who doesn’t treat you like a fish.

So, here I am, still on that quest for the promised land of a better job. Will I find it soon? I’m not quite sure. But I’m taking what I’ve learnt and I’m trying to do things differently now. If I get there, I’ll let you know.

Goldman Sachs Information, Comments, Opinions and Facts