This Week in Your Wallet: August 23, 2011
I ran a five-mile race on Sunday. Although I’m a frequent – and devoted – runner, I have a love-hate relationship with racing. I love being in a crowd of runners heading in the same direction. The energy just carries you along. But I really, really don’t like to compete. This, I’m sure, is a remnant from my days on the high school cross-country team where I routinely brought up the rear. Reliving that experience is not high on my list.
Still, after days of seeing signs advertising the Dog Day Race in Harvey Cedars, NJ, I got up yesterday morning, had a cup of coffee and registered. Fifteen minutes later, we were off, and I felt pretty good, so I set a goal – finish in less than 50 minutes. There were no clocks until the three-mile mark, but when I saw it I was surprised: 26 minutes and change. Keep the pace and you’ve got it, I told myself. And when I crossed the finish line, I had done just that: 46 minutes and 30 seconds. I came in 473 out of a field of about 1200. No records, but certainly acceptable. I felt great for the rest of the day.
A big deal? Not so much. But it meant something to me. And I believe that right now, in what is clearly an uncontrollable world, small victories like this matter even more. It’s these borderline experiences that help us build resilience in this tough times. So this week, I want you to ask yourself: What challenge can you conquer? What would it mean to you to do it? Then post on my Facebook and let me know.
Low Rates and You
Although many people (including me) expected we’d be in a higher interest rate environment by now, the weakness in the economy – global and at home – has prevented that from happening. Last week, Ben Bernanke, Chairman of the Federal Reserve announced he’d keep rates low through the middle of 2013. If you’re looking to borrow money, this is great. Mortgage rates hit another record low last week. If you’re saving, not so much.
The Wall Street Journal published a comprehensive piece that tells you what this means for consumers, banks, companies and institutional investors. It’s here and worth a look. In the meantime, when it comes to your short-term money – the money a retiree might need for living expenses and a parent to pay for a wedding – where should you stash it? Yes, yields are pitiful. The same interest rates responsible for your dirt-cheap mortgages aren’t helping savers any. But that doesn’t mean the average .16% banks are offering on savings accounts has to do. With a just a bit of effort you can earn five or ten times that much. Sometimes more. Check out:
- Online Savings/Money Market Accounts: Sallie Mae is offering 1.15% and Ally Bank 1.0%, both with no minimum balance requirement and no monthly fees. Go to bankrate.com for a list of the best rates for savers.
- High-Yield Checking Accounts. If you’re a frequent debit card user and you’re not stashing away more than about $20,000, a high-yield checking account may suit your needs. These programs typically ask you to use your debit card 10-12 times a month, pay at least one bill automatically or receive one direct deposit each month, and receive your statement electronically. For that they pay higher interest. New Jersey’s Raritan Federal Credit Union pays 3.01% on balances of up to $10,000; New York’s Tioga State Bank pays 2% on balances of up to $25,000. (These programs pay smaller interest on balances that exceed the caps.) For programs in your area go to checkingfinder.com.
- Flexible CDs. We’ve been told by the Federal Reserve that interest rates will stay low through mid-2013. That explains why the difference in yield between the one-year CD at Ally and the two-year is a measly 20 basis points. You’re not getting much of a premium for tying up your money for another 365 days. What’s more attractive is Ally’s four-year CD, with a rate starting at 1.90% and the ability to raise your rate twice during the term. PNC and Bank of America also offer CDs that allow you to get your money out without penalty.
What Are Retirees To Do?
If you’re one of my readers and you’re retired – or you have a retired parent – this tumult in the market affects you more than most. Retirees have earned their money and the process of drawing down when the market takes your nest egg from a level at which you’re comfortable to one at which you’re, well, less so presents a difficult choice: Do you withdraw less until the market recovers? Or continue withdrawing at your current rate and risk not having enough to live on later?
I’ve written in the past about the rule of 4%. This rule, based on considerable research, has shown that most retirees can withdraw 4% of their nest eggs each year and their money will last as long as they do. What you have to remember about this rule is that the 4% is a moving target. It will be less if the market shrinks your retirement pie. It will be more if the market inflates it. The folks at Smart Money wrote about this issue recently. Here’s the link to their story.
Have a good week!
Jean
