Don't be a square, be "Y Squared".
Join us. It just takes being your self.
We all have Y Squared within us. Our shyness and fear of rejection keeps it hidden.
Oh, what is Y squared?
Do you think outside the box?
Do you you have an idea that no one ever thought of and want to express it but are afraid to?
Do you hate the status - quo and wish you could change things?
Do you have a point of view about life, politics, finance, relationships and you want an outlet to let it go?
Become Y Squared.
Exress youself.
We are what makes a difference in the world.
We have integrity.
We are willing to risk popularity to express our selves.
Enter your Y Squared ideas on this blog. It will not be stolen. Look at this site as a safe have to say what you want to say - but no trashing and no profanity - just Y Squared ideas and thoughts.
Be constructive not destructive. Be an individual in the Y Squared population.
Don't be square - be Y Squared!
Tom
Thursday, April 30, 2009
National Net Worth Index Declines in First Quarter 2009
National Net Worth Index declines to -.2069 from -.066 at 2008 year-end, as U.S. real GDP fell at an annual rate of 6.1% and government borrowings grew.
U.S. national debt rises 11%, or $1.1 trillion to $11.1 trillion in the quarter
U.S. consumer debt showed no change at $2.6 trillion at the end of the quarter
The S&P 500 index declined 11.67% in the quarter
GDP and debt data sourced from the U.S. Commerce Department,
The U.S. Treasury and the Federal Reserve Bank of New York. S&P results sourced from Standard and Poors. The charts are derived by Y Squared Advisors and The National Net Worth Index is a proprietary index. All rights reserved.
Click to view
Tuesday, April 28, 2009
Friday, April 24, 2009
Compounding - The Gift of Time - The Curse of Time
Please refer to essay below. Click picture to view.
Don't Let This Happen To You
Don’t let this happen to you -
You are now very young. Perhaps you just finished high school and are heading off to college in the fall. You could be starting a new career soon or already established in the work force. And, you have a few decades before you retire. Retirement is the last think you thought you had to save for at this age. There are so many other important life style choices you would rather put away money for. Who could blame you for not thinking about retirement before buying a house, having children and buying that new car you had your eyes on for months.
Well here’s the thing. When I started working in 1975 – yes, I’m a boomer – my employer had a traditional pension plan. I stayed with that company for 7 years, which was not enough time to earn any pension benefits. My next and last employer also had a pension plan that was terminated after I was there 6 years. I was fortunate to earn a small benefit that may enough to cover my food bills for a week when I am 65.
After this employer discontinued offering pension benefits, they implemented a 401k plan as the replacement. We were told this was the miracle plan because it would give us so much control over how much to invest and what to invest in. Plus, if you were lucky, there was a small company match that went along with it.
The 401k plan did not reach mainstream corporate America until the early 1990s. Now less than 20% of all corporations offer the traditional pension benefit and 401k is now the primary vehicle for funding retirement. This was the first step in establishing what President Bush (#43) called the “ownership society”
So, what is my point?
From the time I was a young employee in 1975 until the beginning of mid career in 1988, I didn’t know I had to save anything on my own for retirement. Fortunately, I put away the most the law allowed in the 401k account thinking that my contributions would be enough to provide me with retirement income comparable to what I was earning.
As it was for most of us in my age group, we didn’t now that a 401k account alone would not be enough to finance a multi million dollar retirement. And unless one knew how to calculate the amount of assets needed 30 to 40 years into the future, taking into account inflation and making certain assumptions about investment returns, there was a high probability of under funding retirement. The consequences of this will start to materialize in the next few years as the first of our group thinks about retiring and realizes they can’t because they don’t have enough money. My generation will need to work longer, if we can, or more likely, scale back our standard of living in retirement.
This is not a finger pointing issue. There is no need to blame anyone for this predicament the boomers are facing. But, it is a wake up call for late boomers and cohorts in the X and Y generations.
There is a lesson for the younger people from our generation’s experience with self funding retirement. The lesson is about the value of compounding – how money grows; it is the gift of time and the curse of time.
In my case, and I am sure the same with many others my age, we were deprived of a 10-15 year compounding term from 1975-1990 that could have made a very substantial difference on the amount of assets we could have had at age 65. The loss of this time is non recoverable – the impact will last as long as we live.
So those who are just starting out earning a good living don’t let your quality of life after you retire be compromised because you did not take the full advantage of having your assets grow over the next 30 to 40 years. You’d be amazed how much money grows over time; $1,000 today becomes almost $15,000 in 40 years at 7% - this is the gift of time.
Now see wait happens if you wait only 3 years to make this deposit – the future value is $12,200 or 20% less. To reach $15,000 you would need to deposit $1,227 or earn 7.60% on a $1,000 deposit instead – this is the curse of time.
Take my advice and get some advice – don’t let 10 or 15 years of good quality compounding time slip away without knowing the consequences like what happened with our generation.
You are now very young. Perhaps you just finished high school and are heading off to college in the fall. You could be starting a new career soon or already established in the work force. And, you have a few decades before you retire. Retirement is the last think you thought you had to save for at this age. There are so many other important life style choices you would rather put away money for. Who could blame you for not thinking about retirement before buying a house, having children and buying that new car you had your eyes on for months.
Well here’s the thing. When I started working in 1975 – yes, I’m a boomer – my employer had a traditional pension plan. I stayed with that company for 7 years, which was not enough time to earn any pension benefits. My next and last employer also had a pension plan that was terminated after I was there 6 years. I was fortunate to earn a small benefit that may enough to cover my food bills for a week when I am 65.
After this employer discontinued offering pension benefits, they implemented a 401k plan as the replacement. We were told this was the miracle plan because it would give us so much control over how much to invest and what to invest in. Plus, if you were lucky, there was a small company match that went along with it.
The 401k plan did not reach mainstream corporate America until the early 1990s. Now less than 20% of all corporations offer the traditional pension benefit and 401k is now the primary vehicle for funding retirement. This was the first step in establishing what President Bush (#43) called the “ownership society”
So, what is my point?
From the time I was a young employee in 1975 until the beginning of mid career in 1988, I didn’t know I had to save anything on my own for retirement. Fortunately, I put away the most the law allowed in the 401k account thinking that my contributions would be enough to provide me with retirement income comparable to what I was earning.
As it was for most of us in my age group, we didn’t now that a 401k account alone would not be enough to finance a multi million dollar retirement. And unless one knew how to calculate the amount of assets needed 30 to 40 years into the future, taking into account inflation and making certain assumptions about investment returns, there was a high probability of under funding retirement. The consequences of this will start to materialize in the next few years as the first of our group thinks about retiring and realizes they can’t because they don’t have enough money. My generation will need to work longer, if we can, or more likely, scale back our standard of living in retirement.
This is not a finger pointing issue. There is no need to blame anyone for this predicament the boomers are facing. But, it is a wake up call for late boomers and cohorts in the X and Y generations.
There is a lesson for the younger people from our generation’s experience with self funding retirement. The lesson is about the value of compounding – how money grows; it is the gift of time and the curse of time.
In my case, and I am sure the same with many others my age, we were deprived of a 10-15 year compounding term from 1975-1990 that could have made a very substantial difference on the amount of assets we could have had at age 65. The loss of this time is non recoverable – the impact will last as long as we live.
So those who are just starting out earning a good living don’t let your quality of life after you retire be compromised because you did not take the full advantage of having your assets grow over the next 30 to 40 years. You’d be amazed how much money grows over time; $1,000 today becomes almost $15,000 in 40 years at 7% - this is the gift of time.
Now see wait happens if you wait only 3 years to make this deposit – the future value is $12,200 or 20% less. To reach $15,000 you would need to deposit $1,227 or earn 7.60% on a $1,000 deposit instead – this is the curse of time.
Take my advice and get some advice – don’t let 10 or 15 years of good quality compounding time slip away without knowing the consequences like what happened with our generation.
Tuesday, April 21, 2009
Tuesday, April 14, 2009
Annual Fair Share Day - April 15th
A real, anonymous taxpayer who is still waiting for a thank you for paying their fair share.
BTW, this individual has no pension, pays for their own health care insurance, pays the highest property tax rate in the country, pays the highest utility costs in the country, pays the highest insurance costs in the country and pays for the pension and medical benefits for public employees, probably the highest in the country.
This real individual is over 50 and no longer has a steady salary. For you liberals out there - KMA - this person has paid their fair share!
Monday, April 13, 2009
Do You Really Want to Spend Your Own Money?
Two strategies - one simple concept!
Keep your assets and extend their duration in retirement and reduce longevity risk.
Read essays below.
Click picture to enlarge
Social Security Benefits - The Conventional View
The conventional view of waiting vs. taking early benefits does not factor in the time value of money - compound interest. This is absolutely the worst way to value the Social Security benefit stream. The conventional view would have you wait until age 70 to get the highest benefit - which is true - but you are waiting 4 years or maybe even 8 years to get it. During this time you would have to spend down your own assets to provide the income you are not getting from Social Security.
Click picture to enlarge.
The Value of Social Security as a Deposit
Consider this. When you receive your Social Security benefits you are able to reduce the amount of retirement account withdrawals by the same amount as the benefit. This keeps your assets invested longer giving them more time to grow. So, it makes sense that the earlier you take benefits the longer your assets stay invested. As this diagram shows, when you start benefits at age 62 - the earliest you can - think of the benefit as a deposit to an investment account (in other words - your retirement assets stay invested) the value of the deposit in the future is always greater starting at age 62, even though the benefit is less than at age 66 or 70. Why? Your benefit is inflation adjusted and you may be able to earn more than a 5% return (I know - just go with it for now) on the assets that stay invested.
Longevity Risk - Don't Run Out of Money
How to extend your retirement assets and control longevity risk.
Longevity risk is the chance that your retirement assets may not last the term of your retirement. It’s a fact - people are living longer. You should plan on your money lasting until age 95 – no kidding.
Haven’t saved enough but would still like to retire early? Here are two strategies to consider based on one simple concept – don’t spend your money first!
I. Earn part time income in the first few years of retirement and extend the duration of your retirement assets by 4 or more years.
Did you know that earning $15,000, $20,000 or more per year thereby avoiding spending down assets by the same amount can extend your retirement resources by up to 4 years or more depending upon how many years you work part time? Here’s how -
Anything you do to avoid spending your retirement assets at the beginning of your retirement has a very lasting and powerful impact on your net worth, due to the power of compounding. The longer assets stay invested the more time they have to grow and the longer they last. The adjacent table illustrates how deferring retirement asset withdrawals of $20,000 per year for the first 5 years in retirement will extend the duration of you assets and help control longevity risk.
Anything you do to avoid spending your retirement assets at the beginning of your retirement has a very lasting and powerful impact on your net worth, due to the power of compounding. The longer assets stay invested the more time they have to grow and the longer they last. The adjacent table illustrates how deferring retirement asset withdrawals of $20,000 per year for the first 5 years in retirement will extend the duration of you assets and help control longevity risk.
II. Take Social Security as Early as You Can!
If ever a topic had more conflicting opinions, it is this one.
The conventional view is to wait to take Social Security benefits until your normal retirement date or later than at age 62, because the monthly amount will be higher. It is true – the monthly amounts are higher. But this doesn’t mean it’s a wise financial decision. By the way, more than 60% of the people who turn 62 take the early Social Security benefit.
Here are three guidelines. One reminder – early benefits are about 25%-35% less and do not step up at your normal retirement age but are adjusted for cost of living – so you do get a raise when you take benefits early.
1. If you plan to keep working until at least your normal social security retirement date and earn more than the maximum before early benefits are reduced or entirely withheld, then do not take the benefit early. In 2009, the upper limit for earned income is $14,160. Earnings above that amount reduce your benefit by $1 for each $2 you earn. Earn $28,320 and your entire benefit for the year will be withheld. The benefit is suspended for the time your income is above this threshold amount and will be restored when or if your income declines below the threshold limit for that year.
2. By taking early benefits, you avoid spending down your own assets by keeping them fully invested - as long as your expected future rate of return is more than 5%, it is economically better to take the benefit at age 62. Otherwise wait until the normal age (although the numbers are close). The benefit for the first four years (age 62 to 66) has a substantial impact on how long your resources will last because your money stays invested longer and the compounding benefit is carried forward far into the future extending the duration of your assets which could entirely eliminate longevity than if you had waited to take benefits. Again, just be certain that you will not exceed the annual income limit set by Social Security when payments become reduced or suspended. When you factor in compounding, it is never better to wait until age 70.
3. Cash today is always worth more than cash in the future because of the risk of inflation. Remember, every year you get a raise due to the cost of living adjustment. Just keep in mind the upper limits on earned income if you take the benefit early.
Still not convinced?
See the two charts that compare the economic values of Social Security benefits when
viewed as a deposit that grows with compounding benefits and the conventional view
that only considers the nominal amount of the benefit.
The conventional view is to wait to take Social Security benefits until your normal retirement date or later than at age 62, because the monthly amount will be higher. It is true – the monthly amounts are higher. But this doesn’t mean it’s a wise financial decision. By the way, more than 60% of the people who turn 62 take the early Social Security benefit.
Here are three guidelines. One reminder – early benefits are about 25%-35% less and do not step up at your normal retirement age but are adjusted for cost of living – so you do get a raise when you take benefits early.
1. If you plan to keep working until at least your normal social security retirement date and earn more than the maximum before early benefits are reduced or entirely withheld, then do not take the benefit early. In 2009, the upper limit for earned income is $14,160. Earnings above that amount reduce your benefit by $1 for each $2 you earn. Earn $28,320 and your entire benefit for the year will be withheld. The benefit is suspended for the time your income is above this threshold amount and will be restored when or if your income declines below the threshold limit for that year.
2. By taking early benefits, you avoid spending down your own assets by keeping them fully invested - as long as your expected future rate of return is more than 5%, it is economically better to take the benefit at age 62. Otherwise wait until the normal age (although the numbers are close). The benefit for the first four years (age 62 to 66) has a substantial impact on how long your resources will last because your money stays invested longer and the compounding benefit is carried forward far into the future extending the duration of your assets which could entirely eliminate longevity than if you had waited to take benefits. Again, just be certain that you will not exceed the annual income limit set by Social Security when payments become reduced or suspended. When you factor in compounding, it is never better to wait until age 70.
3. Cash today is always worth more than cash in the future because of the risk of inflation. Remember, every year you get a raise due to the cost of living adjustment. Just keep in mind the upper limits on earned income if you take the benefit early.
Still not convinced?
See the two charts that compare the economic values of Social Security benefits when
viewed as a deposit that grows with compounding benefits and the conventional view
that only considers the nominal amount of the benefit.
Monday, April 6, 2009
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