CommenTerry

Always Too Late for Good Retirement Deals

If I’m going to have a prosperous retirement, I’m going to have to sponsor it myself. I entered the workforce too late get any of those great retirement deals that the previous generation was lucky enough to get. Many of them had their pensions paid for in full by their employers, without having to contribute a penny of their own money - to the pension or any kind of 401(k). All they had to do was work for a given company for 30 -40 years, and their retirement was all set.

When I began working fulltime 30 years ago, most companies were beginning to phase out their pension plans. 401(k) plans were introduced about a year after I began my career and soon were becoming the way to save for retirement. I worked for my first employer for more than 19 years. They had a pension plan when I began working for them, but phased it out long before I became eligible to participate. But even if I had gotten a chance to participate, I would have had to make a large contribution to out of each paycheck.

The next company I worked for had a great pension plan, which they funded 100%, with no required contribution from their employees. And everyone was eligible for it from day one of their employment. I worked for them for over six years and will get a pretty decent pension from them if I wait until age 67 to begin drawing it. But I can’t help but think of how large it might have been if I had been working for them during those 19+ years I was working for that first company. It would probably have been more than three times as much.

I worked for my third employer for nearly three years. They had a decent 401(k) but no pension plan of any kind. Shortly after I quit working for them, I landed my current position, a civil service job with the federal government. I had assumed they offered great retirement benefits. Well, not so much anymore. Had I come on board 30 years ago when I began working for my first employer, I would be just a few years away from retiring with a big fat pension. But, as it stands now, even if I work until I’m 85, there will be nothing “fat” about my pension.

Those late, great government pension plans are not available to any government employee with less than 25 years of service. We had to settle for a watered-down version. While the employees in the old retirement system could draw up to 80% of the highest salary in pension payments during retirement, the rest of would be lucky to get a monthly pension amounting to 15% of our highest salary. We are expected to make up the remainder via our 401(k) contributions.

At the same time, we must contribute some cash to that small pension we will get. On top that, due to legislation passed by Congress and signed by President Obama this year, those of us who have been with the government for less than five years will have to ante up 2.3% more in pension contributions beginning next year. And we won’t get any bigger of a pension that those who won’t have to kick in the extra money. To add insult to injury, most of us newbies have never gotten a cost of living adjustment, as we came in after Congress froze COLAs for all government employees.

It just doesn’t seem fair. Those government employees who fall under the old retirement system get a great pension when they retire, despite having to contribute almost nothing to it, including no Social Security or 401(k) contributions. True, they won’t receive any Social Security or 401(k) money either, but I would gladly trade in my Social Security and 401(k) benefits to get a pension that amounted to nearly 80% of my highest salary.

Those of us under the newer system will, on average, probably contribute at least 25% of our salary to Social Security, 401(k) plans, and the pension system during our working years and not have nearly as much to show for it at retirement as those who contributed little or nothing to any of that stuff.

But life is not fair, and the unfairness does work both ways. Previous generations didn’t have many of the advantages that we often take for granted. One of them is the ability to generate money from the Internet. And that’s one skill I’m going to have to put into practice if I’m to have any hope of enjoying an early and/or comfortable retirement.

Banks Have Not Cornered the Market on Pesky Fees

I mentioned in a previous post that I recently went to my local cable TV office to pick up a new high definition converter in order to receive all the new HD channels my provider is about to roll out. I decided to go to the office to pick it up instead of having it shipped to me from the main office in effort to avoid their $10 shipping and handling fee. Unfortunately, I still got hit with a fee, although a smaller one.

Just before I left their office with a new converter in hand, I was told that I would be charged $2.99 on my bill for an “office service fee”. The “teller” (yes, that’s they call themselves) explained that this is a standard fee they charge whenever a customer walks to get any kind of item or have some kind of problem resolved. Of course, if someone from their office has to come to your house, the fee is a lot higher. The only way to a get any free help from them is over the phone or via the Internet, and even those services are not always free. So they basically get you coming and going.

But that’s just the tip of the iceberg. People are always complaining about bank fees, but my bank cannot match the fee schedule that this cable TV company utilizes. A couple of months ago, they sent out an updated (aka increased) rate schedule and I couldn’t believe how many fees they listed. Besides their monthly subscriptions fees for their various basic tiers and premium channels, there are monthly fees for additional converters, remotes, on-screen guides, and video-on-demand access.

There are one-time fees for adding services and deleting services. There are fees for hooking things up and disconnecting them. There are fees for bundling services and fees for unbundling services. There are fees for signing a contract and fees for exiting a contract. There a fees for moving services from one location to another.

What will they think of next – fees for a just sitting down in front of your TV and watching a program? Oh wait, they already thought of that years ago. It’s called pay-per-view.

Is There a Conspiracy Against Women in the Workplace?

Supposedly, a woman is paid, on average, 70 cents for each dollar that a similarly- qualified man is paid. As a result, women’s groups are demanding equal pay for equal work. But is there really some kind of conspiracy against women in the workplace? Logic would dictate otherwise. If women make less than men, then it is a result of market conditions, not some kind of conspiracy or widespread chauvinism or misogyny.

Think about it. Many of those who complain the loudest about this so-called injustice against women in the workplace generally accuse big business of being greedy because it is the goal of any business to make a profit. Why would “greedy” corporations not being hiring more and more women (whom they can get for 30% less) and be laying off more and more men? That would make great business sense, wouldn’t it? After all, we have been told that women are just as qualified as their more expensive male counterparts.

Yet I have seen no indication of any mass hiring of women and mass firing of men. Why not? Look at all the money that could be saved. Look at the extra profits the share holders could make. Look at the other things that could be done with that money. Unless, of course, what some people are saying about the unfairness to women in the workplace isn’t really true.

Could it be that, due to their devotion to raising their families, there just aren’t as many qualified and experienced women in the workplace as there are men? I believe it is. Is this the way it’s always going to be? I doubt it. With the current trend of more female than males attending college, things could change gradually over the next several decades. And when, not if, they do, the marketplace will take note and the pay gap between men and women will narrow greatly.

Why Gas Will Not Reach $5 per Gallon This Year

Like there was last year and the year before last, there is once again speculation about the average price of gasoline in the U.S. possibly reaching $5 per gallon. And once again, it’s not going to happen. I don’t care what anybody says. I suspect that they might get slightly above $4 (at the most) before Memorial Day and then start coming down again. Don’t be fooled by the load mouths and doomsayers in the media.

When gasoline or oil prices are going up, they almost always think that those increases will continue on that same trajectory indefinitely. But that’s not how things work in the real world markets. At some point, just as it has in years past, rising gasoline and oil prices will cause the supply of those products to exceed the demand for them. That’s when the prices will begin to fall again. Remember where you heard this first.

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Banks Owe Nothing to Distressed Mortgagers

Recently, the federal government announced a $25 billion settlement by the nation’s top five banks with current and former mortgagers. The funds will be paid to some current borrowers whose mortgages are now underwater, and to some who were foreclosed on and are now out of their homes. The government forced this settlement because those banks supposedly used unethical tactics when signing those people up for their mortgages and/or when they foreclosed on them.

Be it as is might, I don’t think the banks owe these people anything. The people who took out these mortgages were not babies, they were adults. The banks didn’t force any of them to accept a mortgage, and they were not the cause of anyone being late on their mortgage payments. In fact, this settlement rewards irresponsible behavior.

A responsible person would not overextend his or her finances by purchasing the most expensive home that he or she could qualify for. But that’s exactly what the majority of the settlement recipients did. A responsible person would have money put away in case of a job loss or other unforeseen emergency. But the majority of the settlement recipients did not do this.

Most of them bought their homes with the intent to use them as ATMs and with the assumption that the housing market would continue to expand, despite all the warnings and tell-tale indicators to the contrary. They have no one to blame but themselves, and they alone should have to deal with the consequences. Fortunately, most of them will get nothing from this settlement, and those who do won’t get a whole lot. Responsible people can take heart.

How AAA Can Save Money

I recently received the bill for my annual membership dues from AAA. Once again, they have gone up. Of course, that’s something I should have come to expect, as they have hit me with a rate increase almost every year since I first joined that automobile club in 1983. But it made me angry anyway.

In the nearly 29 years I have been a member, my dues have more than doubled. And what I am I getting for my money? In all of that time, I have averaged calling them about once every four years. I rarely travel very far, so I don’t get to take advantage of the benefits they offer on stuff like plane tickets and hotels. Some retailers and service providers offer discounts to AAA members, but I seldom use their products or services.

When I emailed them to enquire as to why they raised their membership dues once again, they told me that it is because it is becoming more and more expensive to provide roadside assistance to their members. They are always having to update their equipment, and labor costs are always increasing. Besides, they claimed, people are hanging on to their vehicles longer and putting off replacing them, because of the current economic conditions. This, of course, means that more of their members are needing roadside assistance more often.

Okay, I can buy that argument, but I believe they are involved in some unnecessary activities that also contribute greatly to the fact that their expenses are constantly on the rise. Two of those activities are lobbying and the marketing of life insurance. There is simply no good reason for an automobile club to be participating in either of those pursuits. I bet that kind of stuff was not in their original charter.

AAA is continually lobbying Congress and the state legislatures for tougher traffic laws, such as those mandating seatbelt usage and providing for stiffer penalties for DUI and texting while driving. Lobbying is expense. Besides, we don’t need more traffic laws. We have too many already. But even if we did need more, it is not AAA’s job to ensure that they get passed. I did not join AAA to support the enacting of more traffic laws. I joined it to get roadside assistance on those rare occasions when I need it. I’m sure the majority of its members feel this way.

And why does AAA waste so much postage marketing life insurance? I must get at least two solicitations in the mail from them every month. It’s just something I’m going to toss into the trash can without reading. I’m more than covered for any final expenses, and then some. That means I already have all the life insurance that I will ever need, as I have no interest in enriching someone else when I die. And if I did ever change my mind, there would plenty of other places I could buy it from. I thought AAA was an automobile club, not an insurance company.

It is my suggestion that AAA cease and desist from these activities effective immediately. Then I won’t have to worry about another rate increase for while, or perhaps I’ll even get a refund.

Help! We Can No Longer Afford the Good Life

One of the major TV networks ran a story the other night about a family that was about to be forced out of their home, due to the fact that the wife lost her job and they could no longer afford the $2200 a month mortgage payment. They were hoping to have the bank permanently cut their interest rate to 2%, which would have resulted in their mortgage payment being slashed in half to about $1100. The story described how much trouble the family was having in trying convince the bank to do this, rather than foreclosing on them. After this story was reported and several third parties subsequently got involved, the bank finally acquiesced.

However, I see this as just another case of someone biting off more than they could chew and then wanting someone else to bail them out of their predicament. Why would someone of average means go out and buy a house that came with a $2200 mortgage payment? With a payment like that, the value of the mortgage must have been at least $300,000. According to the story, they purchased the home ten years ago when the average cost of a new home was around $215,000. Assuming they put 10% down, they paid about $333,000 for their home, or 54% more than the average price of a new home at that time. And, by the way, they didn’t live in an extremely high-cost area.

So, that means one of two things: They were either of better-than-average means or they overbought. Either way, I doubt that they could elicit much sympathy from average homeowners, many of whom are doing all they can to keep up mortgage payments that are barely more than a third of what that family was originally paying.

Should Upside-Down Mortgages Be Adjusted?

Some people are now suggesting that mortgage companies should consider adjusting their customers’ upside-down mortgages down to the amount that the homes are actually worth. For example, let’s assume that someone still owes $300k on a house that is now only worth $230k. Under what is being proposed here, the mortgage company would reduce the amount owed to $230k and adjust the customer’s monthly payment accordingly, which would save that person hundreds of dollars each month. Proponents of these kinds of adjustments argue that they would ultimately benefit mortgage companies as well, as they would prevent foreclosures.

However, what would happen if the homes recovered their values a few years down the road? Who would benefit? Using the example above, what if that home increased in value several years later and the mortgagor subsequently sold it for much more than the $230K mortgage they had been paying off since the adjustment? Would it be fair for them to profit like that? I say no, because it would not be fair to those who did not receive an adjustment.

So, to prevent such unfairness, any amount received by the mortgagor at the time of the sale that is in excess of the adjusted mortgage amount, but less than the mortgage balance prior to the adjustment, would have to be paid to the mortgage company. Going back to our example, if the home sold for $290k, $60k would be owed to the mortgage company at the time of the sale. If it sold for $320k, $70k would be owed to the mortgage company, while the seller would get to keep the additional $20k in profits. However, if it sold for $230k or less, no additional money would be owed to the mortgage company (in excess of the balance at that time).

By accepting the adjustment, the mortgagor would also being accepting some risk. That risk would be that their home would eventually increase in price and they would therefore lose the opportunity to benefit from it. But the opportunity to have their mortgage adjusted in such a way that will allow them to stay in their home in the short term may justify that risk. It would be their call.