The life you save may be your own

Posted on March 21, 2012March 21, 2012 by Danielle

Haitian children attend school classes provided by Non-governmental Agency Partners in Health, at Ancien Aeroporte Militaire Individually Displaced Persons Camp, in Port-au-Prince, Haiti, Apr. 27, 2010. The camp houses over 40,000 displaced Haitians of which about 13,000 are children. (Photo credit: Wikipedia)

Feeling a little pressed these days? Maybe your retirement savings are, oh, half what you probably need. Or that secure job doesn’t look so secure. Or your kid is suffocating under college loan payments. I’m here to tell you you’re lucky.

Why?

If you live in the United States, no matter how poor you are, you’re way better off than most of the world. College bills? At least your daughter got to learn to read. High cost of health care? You can get cataract surgery rather than being a blind beggar by the side of the road. If you get hit by a car, an ambulance will come to pick you up. Losing half your assets in a divorce? At least you can get a divorce. No, I’m not trying to make you feel guilty. I’m trying to make the point that how we evaluate our financial situation is—compared to what?

I’ve had people look me in the eye and tell me they can’t possibly live on $300,000 a year, which is true if they keep spending at the level they’re currently at. If you’re feeling poor and live in this country, you need to adjust your standards and compare yourself to a more rational standard. You will feel really and truly filthy rich if you take my recommendation: go read The Life You Can Save by Peter Singer, a bioethics prof at Princeton. Or just check out the website.

Singer thoughtfully demolishes every one of my pathetic excuses on why I don’t give to charity (at least not enough). Wasteful administration, ineffective programs, too broke, don’t know what’s appropriate, don’t know where to find good charities, can’t decide what issues are most important? Singer addresses and gives sound and thoughtful guidance on all these straw men. If you’re not writing a check by the time you finish this book (or thoughtfully read the website material), well, your name must be Newt Gingrich.

I don’t agree with all of Singer’s conclusions as to where to give, but my guess is he wouldn’t prevent you from donating to environmental causes rather than his preference—third world causes. Nothing prevents you from thoughtful giving to your own priorities. Singer does a terrific job, but I’ll add a few financial planner tips:

Put your money where your mouth is. It’s a favorite leisure activity to complain about politics, how government doesn’t do such and such, ain’t it terrible, those people, etc. Donate to something you really believe in and BE the difference.
Don’t scatter it all over the place. The only thing you’ll get is more junk mail. Give larger donations to charities whose mission you really care about. Maximize your investment.
Just as in investing, put your money into things you understand. Take the time to check out the charity on Charity Navigator, GuideStar, or GiveWell, look at the charity’s website, or pick one where you or someone you know has worked or volunteered.
Don’t be shy about touting your favorites. Singer says other people’s giving increases if they think all their friends are giving. And if you have a regular job, get that employer match!
Give, but don’t feel guilty. Singer has a terrific suggested donation level scale on the website. For most of us, his suggested amounts could be accomplished without much pain on our part.
Keep up with what the charity is actually doing. Many charities can be “liked” on Facebook or have an e-newsletter. Yeah, I get a ton of junk, too, but I make an effort to read about ones I’ve donated to or am thinking of, just as I try to keep up with other investments I’ve made.
It’s not wrong to support charities by buying gift products or accepting membership bonuses. Of course, if you don’t need another coffee mug you can always turn it down and save them some money. But if a scarf or backpack causes you to donate more than you ordinarily would, I say go for it. Nothing wrong with feeling good while you’re doing good.

Since I can’t ever resist the temptation to give advice, I am going to suggest a few of my favorite charities—I don’t have any scientific evaluation process (other than following their activities and checking them out as above)—but you can use them to get started on thinking. Trust me, you’ll feel a lot better about your life and your financial situation in life.

Internationally:

The Fistula Foundation

What they do, and the condition they address, is astounding. Maybe don’t read about it before lunch if you’re a woman or have daughters.

Partners in Health

For even more information on this one, read Tracy Kidder’s book Mountains beyond Mountains. They provide critically needed community health care in many of the dirt poor countries of the world.

Village Health Works

Inspired by Partners in Health and others. Another Tracy Kidder subject—check out the book Strength in What Remains. How you can barely survive genocide and still want to RETURN to help the country that nearly killed you is beyond me. Luckily, others have more courage.

Locally:

Flint Creek Wildlife Rehabilitation

They treat a ton of the busted, hurt, and otherwise impaired wildlife in this area. I don’t know how they do it with minimal staff and budget, but I’m glad they do.

WBEZ Public Radio

Okay, they’re not the poorest of the poor but I listen a lot. I’d sure miss ‘em if they were gone. Plus they give you a nifty discount member card.

Between Friends

They focus on helping victims of domestic violence. May you never need those services, but I guarantee you know someone who does.

So, I’m encouraging you to take the pledge at The Life You Can Save, and put charitable donations in your financial plan. You’ll save your sanity, ground yourself, and your life will most definitely make an impact on the world. Not such bad outcomes.

Why does everyone hate annuities?

Posted on March 7, 2012March 7, 2012 by Danielle

Image via Wikipedia

If you are one of the rare few who have a guaranteed pension at work, you’re probably pretty happy when you think about your retirement. Over the last 20 years or so, these have just about evaporated for most of us working stiffs, except for teachers and public employees. Now, any state or local employee probably is just a teensy bit worried these days about underfunded pensions, but let’s not go there for now. But what about the rest of us?

We’ve all heard about the profligate baby boomers and their frugal saver parents, but the truth is that those “frugal” parents probably collected a nice stable pension from the giant stable companies they’d worked for for 30 years. Baby boomers have been hit with the triple whammies of companies who have moved to 401ks, far less certain and stable employment, and a big thud from investments just as they reach retirement age. And while I’m at it, let’s talk about those generous company matches to your 401k—even a “great” employer probably has figured out by now that a 5% match costs a lot less in contributions than a pension plan (especially if one or two employees don’t contribute, ya’ know?) and is a lot cheaper to set up and run.

So basically, it’s all on you and Social Security. And now, we get to annuities. People hate them, in fact, I hate them. Why? Because the insurance industry has come up with a jillion ways to separate you from your money, pay you less than you thought you’d get, and make it darn near impossible to get out of them once you plunk your money down. Like all the other creative insurance “products”, it’s buyer beware and be sure you know what you’re investing in.

The other reason many people hate annuities (I’m talking about the simplest single premium fixed annuity here) is that it HURTS to write out a big check and wave all that money bye-bye. And we all want to leave our kids a million bucks, right? Do me a favor–ask your kids whether they’d prefer you to run out of money and move in with them, or whether they’d prefer you take care of yourself.

But here’s why I think they’re worth considering:

You can get more income out of the same amount of money. A rule-of-thumb safe withdrawal rate from your retirement portfolio is 4%. So let’s say you have $250,000. You can probably safely withdraw $10,000 per year/$833 per month. Now let’s say you purchase an annuity for $250,000. Even at today’s really crappy rates, you will probably get a payment of around $13,125 per year/$1,093 per month. Makes a difference.
You won’t ever run out. One big risk many of us face thanks to the improvements in medicine is living long enough to outlive our money. The market hasn’t been helping much, either. You can win the lotto, sort of, if you beat the odds and live past 85—a properly structured annuity will keep on paying
They can provide you more money when you’d really like to spend it. That is, when you’re still young enough retired to travel, etc. If you can cover your expenses with a combo of Social Security and an annuity, the rest of your portfolio can be allowed to grow longer. Beats working until 85.

So, if you’re anywhere near retirement age, ask yourself if you’d feel better if you had a guaranteed source of income, like a pension or say, double the amount of Social Security you’ll actually get. If so, it’s worth looking into an annuity. Even if you’re not too thrilled with the current rates, it’s worth considering for the future. If rates improve, you can jump on it then; if they don’t, an annuity is still likely to be the best available.

Of course, selecting one requires some serious thought (hint: get some objective planning advice before you pay a commission to that nice man) and comparison shopping. But for a lot of people, it could make the difference between just barely making it, and having some serious breathing room.

Big wins—get more than one insurance quote

Posted on March 1, 2012March 1, 2012 by Danielle

Image via Wikipedia

I have a change jar in the kitchen and I pinch all the pennies I put into it, but it’s really more about the psychology of feeling thrifty than any significant savings. Anything thrifty makes me feel smug that I’m getting away with something, so I don’t mind these money tricks. But if the thought of cutting your “latte factor” just seems like not worth the bother, there’s still something that can give you a pretty good payday. Real life example coming up.

Get more than one quote, and update those quotes every year or two.

Let’s take a look at my car insurance. I’ve been with well-known mega insurance mutual almost since I started driving, when wheels were made of stone. My family thought of them as a good solid insurance company, cheaper than the other well-known insurance company that has good hands. It’s all been true, and I’ve had both good service and good claims experience with them over the years. Despite my advice to every client, inertia would have probably kept me there.

However, this year I’ve finally convinced dear daughter that she needs to learn to drive. Now, I don’t get this reluctance, because I had my license the hour I turned 16, but she’s avoided the issue and is now 18. But all the college applications are in, and now’s the moment. Called the insurance company to discuss this with them. Insurance would double (no surprise there), but here comes the kicker. I also have a personal umbrella liability policy and not only would the auto insurance double, but the umbrella policy would go up about $1,200 (from $188/year to nearly $1,400). All of a sudden it sounds like real money, no? The kid starts driving and I’m out another $2,500 a year? Either she doesn’t drive until 26 or I really needed another quote.

Got one. That’s when I found out mega insurer has already been charging me nearly twice what the lizard insurance would have. Adding my daughter as a driver brings it up to just about what I’m already paying, and the umbrella policy is cheaper than my current one. Looking back, saving $150 or so a year probably wasn’t compelling (although it would have paid for a great dinner at a better restaurant than I usually frequent), but going forward, I made $1,800 for an hour’s work, a little better than I do with financial planning, KWIM?

Full disclosure, apparently eliminating this will cause my homeowner’s insurance with mega-insurance to go up by $200, but it’s still worth it. Lizard insurance wasn’t able to beat that, but there’s probably more quotes in my future. I feel like I’m on a roll.

By the way, I did do a little “due diligence” on this and there are plenty of complaints on message boards about my new insurance company. Trick is, there are plenty about my old insurer, also. Sigh. Since I haven’t had an accident in more than 15 years (and that guy ran into me), and I’m hoping dear daughter won’t run into a pole, I hope I never have to test it. One thing that became apparent, though, in the discussion with the agent was, the lizard doesn’t like people that don’t have a perfectly clean record.

Insurance can be a pretty dull topic, but disaster protection and money savings aren’t. Products change so quickly, it’s worth a good look at all your coverages every year to two years—adequate? Up to date? Correct beneficiaries when applicable? And of course, best value.