Archive for March 9th, 2010

Breaking down Gen Y’s $2 million retirement price tag

This post was originally published at CBS MoneyWatch and was written by Carla Fried

This just in: $1 million isn’t what it used to be. That’s the supposed news coming out of a recent survey of investment advisers conducted by Scottrade. More than three-quarters of registered investment advisors (RIAs) surveyed said Gen Y should save at least $2 million for retirement.

“While there are no definitive answers on how much money various generations will need to save for retirement, it is clear that the majority of RIAs feel the $1 million goal is not enough for most families,” saidScottrade’s Craig Hogan in announcing the survey results.

Really? That’s news? Seems to me the real news is the fact that 100 percent of the RIAs didn’t think $2 million is a reasonable nest egg target for Gen Y. Inflation’s impact over the next 40 years or so makes $2 million a fairly conservative estimate of what today’s 20-somethings will need to maintain their purchasing power in retirement.

Enough with the Scare Tactics
It’s unfortunate that we’re still talking about “The Number” when it comes to retirement planning. Clearly, headlines running big scary numbers serve no useful purpose other than to push most people to tune out.

What makes for a less ominous headline, but far more useful planning advice, is to recast the issue and slap this headline on it:

Hey, Gen Y: Save $100 a week and relax.

Yes, relax. A 25-year-old Gen Yer who manages to start saving $400 a month today will have a nest egg in the vicinity of $2 million by age 70 assuming the account earns an annualized 8 percent. Even more useful would be to point out that if you happen to work for an employer who offers a 401(k) matching contribution, you can have your boss do a lot of the heavy lifting for you. A fairly common matching formula is that the company tosses in 50 cents for every dollar an employee contributes to the plan, up to six percent of salary. With that setup, someone making $50,000 would need to set aside just $275 or so of his or her own money; the other $125 being chipped in as the company matching contribution.

I appreciate that saving anything right now isn’t a breeze for Gen Y. But when you recast the challenge from the off-putting $2 million “number” to a more digestible $300-$400 a month you actually might help future generations do a hell of a lot better job prepping for retirement. (EBRI data show that about 75 percent of workers age 55+ have less than $250,000 saved up.)  And if anyone is interested in giving Gen Y truly helpful advice, how about ramping up the headlines over what a great opportunity you have at 25, if you’re able to grab it?

To get to that $2 million starting at age 25 using the earlier assumptions would require forking over $216,000 of your own money; compound growth would do the rest of the work. Wait until age 40 to start saving for retirement and it would take about $500,000 of your own money (~$1,400 a month) to have a shot at he same $2 million nest egg by age 70, assuming the same 8% annualized gain.

Ask Baby Boomers closing in on retirement about their planning regrets and the most common lament is that they wish they had started saving earlier. That’s something worth passing along to Gen Y.

About the Author

Carla Fried started reporting on retirement way back when the 401(k) was a new-fangled oddity (i.e., the mid ’80s). As a senior writer at Money magazine in the 1990s, she wrote extensively on retirement planning and investment and covered a wide range of personal financial topics, from real estate to insurance. She is a dot-com veteran, having served as the managing editor at Quicken.com. Since 2002 she has freelanced for publications and websites including Business 2.0, Kiplinger’s, Money, The New York Times, and Real Simple.

4 Biggest Lies in Real Estate

This post was originally published at CBS MoneyWatch and was written by Ilyce Glink.

A funny thing about the digital age — the more information we have access to, the more misinformation we get hit with. In the not-so-long ago days when the Internet was mainly for e-mail and facebooks were made of paper, homes were mostly advertised through newspaper ads. As long as you understood that TLC meant you needed to be handy with a hammer and an “efficiency kitchen” meant you’d better like take-out, you could avoid getting suckered.

Anyone gearing up to buy or sell a house this spring, however, has to bring a bit more skepticism to the process. Sure, the Internet has transformed the process of buying and selling a home in wonderful ways, but it has also increased the opportunities for mischief. Fall for bogus listings and lousy home price “data” and you could wind up overpaying for a home or finding yourself stuck, unable to unload the one you have. Don’t get taken by these big lies:

1. Phony Photos and Videos

Digital photos and video have been a godsend for real estate agents, homebuyers and sellers, enticing prospects to drool over images of Viking ranges, sparkling pools and lush lawns. Lately, agents have been posting interactive photos and floor plans, letting buyers view rooms and exteriors from different vantage points. Some houses have their own YouTube sites.

Problem is, it’s easy to Photoshop photos and edit video to make a house and its neighborhood seem far more attractive than they are. Some sellers post photos of kitchens and gardens you won’t find in the actual property. Videos get color-corrected so the grass, flowers and trees seem fresh and alive. A house may seem newly painted, even though the photo was taken five years ago.

Get the Truth: Go to Google Street View or Microsoft Live Search Maps for a reliable third-party look at a neighborhood or home exterior. They won’t show the inside of a house, though, so you’ll need to drive to the property and see it for yourself.

2. Valuations Lacking Value

Knowing how much a house is truly worth is vitally important whether you’re a buyer or seller. With home values down an average of 30 to 40 percent since 2005 in major metro areas, every penny counts. But you can’t always trust the numbers on home valuation sites such as Zillow,CyberHomes and Realtor.com.

When I plugged in a particular 5-bedroom/4-bath house on these sites, I received vastly different valuations and sometimes incorrect information about the number of bedrooms and bathrooms it had. I’d estimate the house is worth between $1.2 and $1.4 million. Zillow’s “Zestimate” (a calculation also used by RealEstateABC.com) was $943,000; CyberHomes suggested a range of $960,000 to $1.2 million and Realtor.com went with $788,036.

Get the Truth: It’s fine to start with online valuation sites for ballpark estimates. But to get a reliable valuation, get out of the virtual world and into the real world. If you’re selling, invite several real estate agents to walk through your home and analyze its value based on recent comparable sales. You might also hire an independent appraiser (cost: around $350 and up). If you’re buying, hire an agent who has worked the area for years, if not decades. It’s generally a waste of money for a buyer to hire an appraiser, since the lender will require its own appraisal before granting a mortgage.

3. Mortgage Rates You Can’t Get

Visit a mortgage aggregating site such as Bankrate.com and you’ll naturally want to apply for the lowest rate shown. But that rate may not really exist — at least not for every applicant.

Mortgage lenders often advertise fake low rates online without explaining that you can’t get them if your down payment or credit score is too low or you’re not willing to pay extra-high closing costs. At worst, the rate may be a “bait and switch” and wholly unavailable.

Get the Truth: Start your mortgage shopping by identifying a well-known national or regional bank, a small local lender, a well-regarded mortgage broker, a credit union (if you belong to one or can join one), and an Internet mortgage aggregator such as Priceline. Then go toAnnualCreditReport.com to pull a copy of your credit history and to pay to get your credit score. Next, find out what each lender on your list would really charge for your loan. Use the quotes to negotiate the best deal.

4. Unreal Property Descriptions

The old saw, “You can’t believe everything you read” is often true about online listings. A property advertised as having a “water view” might feature a glimpse of the ocean if you open the window, stick your head out, and look left.£ A “light, bright” apartment implies loads of sunshine, but may instead describe the wattage from overhead lighting. A condo’s listing sheet promoting “Southern exposure” might leave out a key fact: The front rooms look south, but the rest of the place faces a warehouse 10 feet away. A mention of an “in-law” or “rentable” apartment over the garage won’t say whether renting out that room is illegal, subjecting you to a future showdown with local zoning officials.

Get the Truth: To weed out unreal estate, do some fact-checking. If the beachfront condo supposedly has a water view, tell the broker to e-mail you a floor plan for the entire building. When a listing sheet says the house had a substantial renovation, check it out before you get too excited. And if you get serious about the property, you can always ask the town building department to confirm a renovation; there may be blueprints on file. If you’re counting on renting out a room above the garage, ask the building department if it’s allowed.

Bonus: Euphemism Alert

One thing that the digital revolution hasn’t changed at all — the extraordinary ability of real estate agents to put lipstick on a pig. Here’s a guide to words and catchphrases you’re likely to encounter and what they really mean:

The Listing Says… The Listing May Mean…
Cozy/Dollhouse The house is tiny, cramped and everyone over 6 feet tall will bump their head on the ceiling.
Handyman’s Special You’ll need to do a gut remodel if you want to make the home livable.
Great View You might have to crane your neck out the window to see the water.
Rentable In-law Apartment This might be a separate room, a half-finished basement, or completely illegal.

About the Author

Ilyce R. Glink is the author of several books, including 100 Questions Every First-Time Home Buyer Should Ask and the upcoming Buy, Close, Move In!. She blogs about money and real estate onMoneyWatch and at ThinkGlink.com.

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