RETIREMENT is sometimes defined as the point in life when we stop spending the majority of our time at work and begin living life.
Once our retirement celebration is over, most of us will spend more time staying at home. It will be natural for us to retire in a familiar area close to family, friends, church, neighbours, shopping and other amenities in the neighbourhood. Hence, our dwelling place becomes exceedingly important to us.
During the early stages of retirement, those who can afford to upkeep the house and even hire a maid to take care of it, may not be under financial pressure. But if your retirement savings are depleting year after year and you are not making enough money from investment portfolios, your house can become a financial burden.
Few of us can think objectively about retirement and old age. Any decision to move or to ‘stay-put’, even after a fall or a health problem would precipitate some trauma.
Having to leave a comfortable home and adjust to unfamiliar surroundings – especially when the choice is not ours is frightening. Uprooting would mean “taking away” our sense of belonging and an immediate isolation from family and friends.
There are initiatives overseas in providing appropriate housing for elderly people within community living – a form of ‘lifetime home’ without having it identified as “old-folks’ ghettoes”. In a survey amongst the “new elderly” in Denmark, high priority was given to good housing amenities and the ability to stay in one’s own home as long as possible.
As one poignant respondent commented in the survey: “It is important to move while you still can to a place you choose before other people move you to a place they choose.”
While we wait for such amenities to be available in Malaysia, it is important to be clear minded about our “age in-place” during the golden retirement years.
Choose our dwelling place with a conscious intention of simplifying our life, controlling maintenance costs to accommodate our ageing needs and minimising disruption to our living habits. Unless our adult children can take care of all these, it is safer for us to maintain them within our affordability.
It is wise for you to start thinking about it with the following considerations. Although they may not be comprehensive, they serve as a good guide:
a. Financial Considerations
·Housing loan obligation – housing loan period should not be stretched into your retirement. It can be financially stressful unless you have investment income to pay for it. Your retirement savings are best conserved for living expenses and not loan repayments.
·A loan-free house is a good idea if you plan to sell it in exchange for a cheaper retirement place. The extra cash from the sale will become useful for your ageing needs.
·Live in a house where cleaning and washing can to be kept at the minimum. You don’t want to be spending your retirement money, time and energy on upkeep instead of enjoying your retirement.
·Live in a house that requires low electricity consumption – energy saving lights and good air circulation can reduce lights and air conditioning. The extra money you save on electricity bills can be used to pay your groceries and important living expenses.
·Location of your house is important. One with affordable cost of living for groceries, shopping and eating out can help stretch your dollar. A place with public transport would provide the convenience, and savings on vehicle costs, petrol and parking fees. Remember that at some point in your retirement you might decide to stop driving.
b. Non-financial considerations like family and friends support, community living with leisure activities and availability of medical-assisted care. You wouldn’t want to be lonely and may prefer assisted-care at home or nearby places.
c. If you want to retire abroad, planning with lots of foresight, research and fact finding from people who have experienced retiring abroad is important. You won’t want to fall into the trap of not being able to afford it or find that you regret it because you miss your family and friends in your home country.
A comfortable house is a great source of happiness for your transition to “ageing in-place”.
If not planned properly, it could be an emotional and expensive affair for you and your family members. It is better to think through all possibilities now for a happy retirement dwelling place later!
BY Carol Yip who is a personal financial coach and also founder and CEO of Abacus for Money
COMMENTS:
Sunday, February 28, 2010
Saturday, February 27, 2010
What I Learned from My Dad
When his youngest son decided to become a musician, Buffett offered moral but not financial support
So—what to do with the money? I was a student at Stanford University; there were no strings attached. Fortunately, I'd had the advantage of seeing my older siblings burn through most of their cash; I didn't want to follow down that path. At the other extreme, I might have done absolutely nothing with that stock—just left it in an account and forgotten about it. If I'd picked that option, my shares would now be worth around $72 million. But I didn't make that choice, and I don't regret it for a second. People think I'm either lying or crazy when I say this, but it happens to be true, because I used my nest egg to buy something more valuable than money: I used it to buy time.
My inheritance came to me around the time I was finally committing to the pursuit of a career in music. As a pragmatic Midwesterner with a very limited nest egg, I knew that I would have to find a way to turn my creative impulses into a livelihood. But how did one do that? How would I find an audience, or clients, or a way to sell what I'd written and produced? I didn't have a clue, but it was becoming clear to me that I wasn't going to figure it out by staying in a university.
I decided to leave Stanford and use my inheritance to buy the time it would take to figure out if I could make a go of it in music.
With help from my father, I worked out a budget that would allow me to conserve my capital as long as possible. I moved to San Francisco, where I lived very frugally—small apartment, funky car. My sole extravagance was in expanding my recording equipment. I played the piano, wrote tunes, experimented with electronic sounds. Then I put a classified ad in the San Francisco Chronicle, offering to record all comers in my studio.
And I waited until a very important bit of good luck tracked me down one day in 1981, as I stood at a San Francisco curbside washing my crummy old car. A neighbor with whom I'd had nothing more than a nodding acquaintance happened by and asked what I did for a living. When I told him I was a struggling composer, he suggested I get in touch with his son-in-law, an animator who was always in need of music. I followed up, and the son-in-law did have work for me. He'd been commissioned to create 10-second "intersticials"—quick ads meant to flash a logo and establish a brand ID for a newly conceived cable channel.
I took the work. And the cable channel more than launched; it rocketed to the moon. It was called MTV. Soon many TV outlets wanted to look and sound like MTV. I no longer had to take on unpaid work.
My inheritance was relatively modest, but it was more than most young people receive to get a start in life. Having that money was a privilege, a gift I had not earned. If I'd faced the necessity of making a living from day one, I would not have been able to follow the path I chose.
Would my father have helped me get started if I'd chosen a career on Wall Street? I'm sure he would have. Would he have given me a job at Berkshire Hathaway if I'd asked for one? I suppose so. But in either of those cases, the onus would have been on me to demonstrate that I felt a true vocation for those fields, rather than simply taking the course of least resistance. My father would not have served as an enabler of my taking the easy way out. That would not have been an exercise of privilege, but of diminishment.
Adapted from Life Is What You Make It by Peter Buffett, © 2010 Peter Buffett. Reprinted by permission of Harmony Books, an imprint of the Crown Publishing Group.
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See more links on Worren Buffett:
1. When CEOs Have Warren Buffett in Their Boardroom
What's it like to have America's greatest investor as your shareholder? Buffett's biographer talks to CEOs who know
2. Buffett's winners and losers
3. Warren Buffett Is No Steve Jobs
4. A Lesson From Warren Buffett:5. Buffett: Bailouts not just for CEOs
How Safe Are Your Dollars?
CAMBRIDGE – Chinese officials and private investors around the world have been worrying aloud about whether their dollar investments are safe. Since the Chinese government holds a large part of its $2 trillion of foreign exchange in dollars, they have good reason to focus on the future value of the greenback. And investors with smaller dollar holdings, who can shift to other currencies much more easily than the Chinese, are right to ask themselves whether they should be diversifying into non-dollar assets – or even shunning the dollar completely.
The fear about the dollar’s future is driven by several different but related concerns. Will the value of the dollar continue its long-term downward trend relative to other currencies? Will the enormous rise of United States government debt that is projected for the coming decade and beyond lead to inflation or even to default? Will the explosive growth of commercial banks’ excess reserves cause rapid inflation as the economy recovers?
But, while there is much to worry about, the bottom line is that these fears are exaggerated. Let’s start with the most likely of the negative developments: a falling exchange rate relative to other currencies. Even after the dollar’s recent rally relative to the euro, the trade-weighted value of the dollar is now 15% lower against a broad basket of major currencies than it was a decade ago, and 30% lower than it was 25 years ago.
Although occasional bouts of nervousness in global financial markets cause the dollar to rise, I expect that the dollar will continue to fall relative to the euro, the Japanese yen, and even the Chinese yuan. That decline in the dollar exchange rate is necessary to shrink the very large trade deficit that the US has with the rest of the world.
Consider what a decline of the dollar relative to the yuan would mean for the Chinese. If the Chinese now hold $1 trillion in their official portfolios, a 10% rise in the yuan-dollar exchange rate would lower the yuan value of those holdings by 10%. That is a big accounting loss, but it doesn’t change the value of the American goods or property investments in the US that the Chinese could buy with their trillion dollars.
The Chinese (or Saudis or Indians or others outside the euro zone) should, of course, be concerned about the dollar’s decline relative to the euro. After all, when that decline resumes, their dollar holdings will buy less in European markets. While it is hard to say how much the decline might be, it would not be surprising to see a fall of 20% over the next several years from the current level of about 1.4 dollars per euro.
But the big risk to any investor is the possibility that inflation will virtually annihilate a currency’s value. That happened in a number of countries in the 1970’s and 1980’s. In Mexico, for example, it took 150 pesos in 1990 to buy what one peso could buy in 1980.
That is not going to happen in the US. Large budget deficits have led to high inflation in countries that are forced to create money to finance those deficits because they cannot sell longer-term government bonds. That is not a risk for the US. The rate of inflation actually fell in the US during the early 1980’s, when the US last experienced large fiscal deficits.
Federal Reserve Chairman Ben Bernanke and his colleagues are determined to keep inflation low as the economy recovers. The Fed has explained that it will sell the large volume of mortgage securities that it now holds on its balance sheet, absorbing liquidity in the process. It will also use its new authority to pay interest on the reserves held by commercial banks at the Fed in order to prevent excessive lending. This is, of course, a formidable task that may have to be accomplished at a time when Congress opposes monetary tightening.
Looking forward, investors can protect themselves against inflation in the US by buying Treasury Inflation-Protected Securities (TIPS), which index interest and principal payments to offset the rise in the consumer price level. The current small difference between the real interest rate on such bonds (2.1% for 30-year bonds) and the nominal interest rate on conventional 30-year Treasury bonds (now 4.6%) implies that the market expects only about 2.5% inflation over the next three decades.
So the good news is that dollar investments are safe. But safe doesn’t mean the investment with the highest safe return. If the dollar is likely to fall against the euro over the next several years, investments in euro-denominated bonds issued by the German or French governments may provide higher safe returns. Even if the dollar is perfectly safe, investors are well advised to diversify their portfolios.
● By Martin Feldstein, a professor of economics at Harvard, was chairman of President Ronald Reagan’s Council of Economic Advisors and president of the National Bureau for Economic Research.
The fear about the dollar’s future is driven by several different but related concerns. Will the value of the dollar continue its long-term downward trend relative to other currencies? Will the enormous rise of United States government debt that is projected for the coming decade and beyond lead to inflation or even to default? Will the explosive growth of commercial banks’ excess reserves cause rapid inflation as the economy recovers?
But, while there is much to worry about, the bottom line is that these fears are exaggerated. Let’s start with the most likely of the negative developments: a falling exchange rate relative to other currencies. Even after the dollar’s recent rally relative to the euro, the trade-weighted value of the dollar is now 15% lower against a broad basket of major currencies than it was a decade ago, and 30% lower than it was 25 years ago.
Although occasional bouts of nervousness in global financial markets cause the dollar to rise, I expect that the dollar will continue to fall relative to the euro, the Japanese yen, and even the Chinese yuan. That decline in the dollar exchange rate is necessary to shrink the very large trade deficit that the US has with the rest of the world.
Consider what a decline of the dollar relative to the yuan would mean for the Chinese. If the Chinese now hold $1 trillion in their official portfolios, a 10% rise in the yuan-dollar exchange rate would lower the yuan value of those holdings by 10%. That is a big accounting loss, but it doesn’t change the value of the American goods or property investments in the US that the Chinese could buy with their trillion dollars.
The Chinese (or Saudis or Indians or others outside the euro zone) should, of course, be concerned about the dollar’s decline relative to the euro. After all, when that decline resumes, their dollar holdings will buy less in European markets. While it is hard to say how much the decline might be, it would not be surprising to see a fall of 20% over the next several years from the current level of about 1.4 dollars per euro.
But the big risk to any investor is the possibility that inflation will virtually annihilate a currency’s value. That happened in a number of countries in the 1970’s and 1980’s. In Mexico, for example, it took 150 pesos in 1990 to buy what one peso could buy in 1980.
That is not going to happen in the US. Large budget deficits have led to high inflation in countries that are forced to create money to finance those deficits because they cannot sell longer-term government bonds. That is not a risk for the US. The rate of inflation actually fell in the US during the early 1980’s, when the US last experienced large fiscal deficits.
Federal Reserve Chairman Ben Bernanke and his colleagues are determined to keep inflation low as the economy recovers. The Fed has explained that it will sell the large volume of mortgage securities that it now holds on its balance sheet, absorbing liquidity in the process. It will also use its new authority to pay interest on the reserves held by commercial banks at the Fed in order to prevent excessive lending. This is, of course, a formidable task that may have to be accomplished at a time when Congress opposes monetary tightening.
Looking forward, investors can protect themselves against inflation in the US by buying Treasury Inflation-Protected Securities (TIPS), which index interest and principal payments to offset the rise in the consumer price level. The current small difference between the real interest rate on such bonds (2.1% for 30-year bonds) and the nominal interest rate on conventional 30-year Treasury bonds (now 4.6%) implies that the market expects only about 2.5% inflation over the next three decades.
So the good news is that dollar investments are safe. But safe doesn’t mean the investment with the highest safe return. If the dollar is likely to fall against the euro over the next several years, investments in euro-denominated bonds issued by the German or French governments may provide higher safe returns. Even if the dollar is perfectly safe, investors are well advised to diversify their portfolios.
● By Martin Feldstein, a professor of economics at Harvard, was chairman of President Ronald Reagan’s Council of Economic Advisors and president of the National Bureau for Economic Research.
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