XChange - The NBR Blog

Instant Info

2009-11-24T22:02:28Z

Authored by Harry Lin, CEO of Lottay.com

In a world where Google, Wikipedia, and Twitter can tell you almost anything almost instantly, are we smarter or dumber than we've ever been?

Think about these examples:

- You're with a group of people and the question comes up, "When is daylight savings time?" Someone whips out their iPhone and Googles the answer. They can even tell you which countries follow daylight savings and which don't. This info takes about 60 seconds to find, and you could be anywhere, as long as there's Internet connectivity.

]]> - You're in Best Buy shopping for a digital camera and wonder if that sale price is a bargain. With your iPhone, you snap a picture of the barcode and upload it to an app that scans a database of UPCs and tells you that camera is available at Amazon.com for $9.45 less, plus free shipping.

- It's Thanksgiving morning, you're in the kitchen preparing to cook, and you suddenly realize you don't know what to do with that acorn squash you picked up at the grocery [because it just looked so autumnal!]. Go to Twitter, tweet your question ("Best recipes for acorn squash?"; 30 characters!), and your followers tweet back links to web sites with great recipes, including reviews from other cooks.

The breadth and depth of information currently available literally at our fingertips is remarkable.

But has this made us smarter?

Not yet. Because there's a gap between information and knowledge and we're just starting to cross it.

That gap is the difference between a library and a librarian or a school and a scholar. One is a place with information, the other is a person with knowledge. You can also think of it as the difference between data and comprehension.

Within the Internet industry (my career for the last dozen years), we constantly talk about What's Next? What is "Web 3.0"?

For some Internet companies, the answer is knowledge. Some companies are attempting to close the gap between the library and the librarian.

New search engines such as Hunch and Wolfram Alpha are less about matching keywords and more about knowledge discovery. You type in "How do I find a marketing job in San Francisco?" or "Should I move to Seattle?", and these next-generation sites actually give you a meaningful set of answers. (Play around with Wolfram Alpha; it'll blow your mind.)

Today, though, we're still just drowning in data. The Internet is mostly noise. That's exactly why the consumer yearns for comprehension. The Internet businesses that innovate in that direction will be the next successes.

Harry Lin is CEO of Lottay.com, an Internet startup based in Ventura, California.

Becoming a Landlord: the Nitty-Gritty

2009-11-24T15:27:46Z

So, let's say you've ignored the red flag I waved the other day. You want to be a landlord despite the mountain of aggravation I went to so much trouble to describe.

Okay, let's get down to some of the nitty-gritty financial issues. But first a caveat: These matters are terribly complex, and I'll offer just a bird's-eye view that misses lots of exceptions and special circumstances. Taxes are a nightmare, and you should study IRS Publication 527.

]]> People become landlords in different ways, and the path you take has some bearing on the finances.

Some come to it accidentally, inheriting a property or moving when it's a bad time to sell. They hope it's a short-term venture. They are not expecting to make a killing on appreciation over many years, just to do a little better than if they sold right away. Others buy rental properties for purely financial reasons, expecting to maximize gains over a number of years or decades. The final group has mixed motives, hoping rental income will offset the costs of buying and maintaining a vacation home, but not necessarily turn a profit.

Regardless of the path you take, basic rules apply. All rental income is taxed as income, at rates from 15 to 35 percent for most owners. Payments for mortgage interest are tax deductible, just as on a primary home. With some exceptions that I'll get to, almost all expenses are tax deductible, including improvements, ordinary maintenance, insurance, property taxes, management fees, advertising and so forth.

Keep in mind, though, that deductions are not a pot of gold. If you spend $1,000 on homeowner's insurance and deduct 25 percent, you save $250 on taxes but are still out $750.

Here's an example of just how messy the tax issues can be: Because a rental property is a business, it can be depreciated, just like a truck that wears out over time. You depreciate the cost of the structure, but not the land, typically over 27.5 years. If the land value for a $300,000 property was $100,000, you'd deduct 1/27.5th of $200,000 every year, or $7,273. That could reduce your income tax by $1,818, assuming a 25 percent bracket.

Sound like a great deal? Well, there's a catch. When you sell the property, the depreciation is subtracted from the original cost and becomes taxable. Let's say you bought the $300,000 property above and claimed about $75,000 in depreciation over the years, then sold it for $400,000. You'd subtract the $75,000 from the $300,000, making the taxable profit $175,000 instead of $100,000.

As I mentioned above, there are some exceptions to the routine deductions. These apply if you use the property yourself - for vacations, for instance. Basically, you reduce the deductions by the percentage of the time you use the property. It's complicated, but to get the maximum rental deduction you'd have to use the property for no more than 14 days a year.

What about appreciation over the long term? I think this lures lots of people into the business, and on the surface the math is enticing. Let's say you buy a $300,000 rental property, putting the typical 20 percent down, or $60,000. Ten years later you sell it for $600,000. You've turned $60,000 into $300,000, a 400 percent gain.

Except that this doesn't account for all the expenses that were not covered by rental income. Even with all the deductions and depreciation factored in, smart investors don't expect to turn a profit in the first year. Many assume a property will run in the red for five years or longer.

The other problem, of course, is that owning just one rental property means having a lot of eggs in one basket. If the house next door is taken over by a biker gang or the beach is washed away by a hurricane, your property value could be hammered. Prices of vacation properties are especially vulnerable to downturns because people don't really need vacation homes.

Rental income is also hard to project. Even in good times, rental demand can slacken because renters want to become homeowners. Today, rents are hurt in many areas because of overbuilding during the bubble several years ago, and because owners of condos and single-family homes are renting properties they cannot sell, producing excess supply.

I guess I've offered a pretty negative view. Certainly, lots of people have made money owning rental properties, and some even profess to enjoy it.

But it takes a cast-iron stomach and a lot of discipline and staying power. I'd rather put my loose cash into a good mutual fund.

Jeff Brown is an experienced business journalist and personal finance columnist who has written for The Philadelphia Inquirer, The New York Times, and TheStreet.com. Read his bio to learn more about him.

Blog made possible with support from the Corporation for Public Broadcasting.

Careers for the Next Decade: The Importance of Thinking Ahead

2009-11-23T20:55:34Z

Career counselors are often quick to recommend fields where a personnel shortage currently exists. That seems logical...after all, shouldn't you train for positions where the jobs are?

Perhaps not. Take the teaching profession. For years, it was chronically understaffed--so thousands of students and mid-life career changers decided to train to become teachers. But just as they got their certification, the economy went into recession. With declining tax revenues, school districts began laying off teachers. Now there are now too many qualified teachers and not enough openings. The shortage of teachers has turned into a glut.

To help you avoid falling into that trap, we're profiling four up-and-coming careers in our Thanksgiving Day program. Our consultant, Dr. Marty Nemko, says each meets two criteria: 1) it should grow in demand in the coming years 2) it is still largely undiscovered. One is "Patient Advocate." Never heard of it? That's the idea. As Marty put it: "Everyone knows there's going to be a great need for physicians' assistants and nurse practitioners. But most people have never read about a patient advocate. It's under the radar--so the competition may be less rigorous." And a bonus is that becoming a patient advocate requires far less training than most other medical specialties.

]]> The other careers being profiled are "Asian Business Development Specialist," "Immigration Specialist" and "Emergency Planning Manager." All of these take advantage of expected business or demographic trends that should mean more demand for people with these skills.

For example, did you know that 80% of U.S. population growth in the next few years is projected to be from immigrants or their descendants? Nemko says that will mean a huge need for professionals who can provide services to immigrants--from translators to lawyers.

Talk about need-- Asia Business Development Specialist should be a "no-brainer." It's no secret that Asia is accounting for an ever increasing share of this nation's trade. That should bode well for job-seekers who know how to advise companies about doing business in China and other Asian nations.

And while government has traditionally been responsible for planning for emergencies (think FEMA), businesses are now jumping on that bandwagon and hiring their own emergency planners. Nemko says that trend is here to stay, because a company that doesn't handle a crisis properly could be hit with huge lawsuits.

Of course, there are no guarantees when it comes to finding the right career.
But by helping you to stay a step ahead of the economy--and a step ahead of the
crowd--NBR may be able to help you improve the odds. So be sure to tune in to
"Careers for the Next Decade."

Freefalling State Revenues Mean Higher Taxes, Tuition, Ahead

2009-11-23T20:29:09Z

The Dow Jones Industrial Average is on its way to posting another triple-digit gain Monday, as more encouraging data on the housing market boost hopes that happy days are here again for the U.S. economy.

Tell that to state governments.

State tax revenues have been in a freefall over the last year -- the steepest drop in tax collections seen in more than 50 years. Overall state tax revenues dropped 10.7% in the third quarter, compared to the same period a year earlier, in the 44 states providing tax data to the Nelson A. Rockefeller Institute of Government at the State University of New York. (Find the complete report here.)

]]> Personal-income taxes fell 11.4%, while sales-tax revenues declined 8.2%. (About 80% of state tax revenues come from sales and personal-income taxes.) It was the fourth-straight quarter that both income-tax revenue and sales-tax collections declined, year-over-year. But the biggest drop by far was in corporate-tax revenue -- down a whopping 19.4% in the period in 44 states surveyed by the Rockefeller Institute.

(To see how your state compares to others in where its tax revenue comes from, click here.)

The drop in tax collections comes at a time when state and local government are struggling to keep up with demands from laid-off workers, and their families, who are desperately in need of unemployment benefits, food stamps, housing subsidies and health-care insurance. In order to make up for the severe budget shortfalls the drop in tax revenue has caused, many states are being forced to lay off their own state workers, borrow federal funds to pay for unemployment benefits, and slash funding for education and other vital government programs.

Increasingly, states are having to balance budgets on taxpayers' backs. At least seven states have already raised personal income and sales taxes to make up for budget shortfalls, according to an annual review of state legislative actions by Stateline.org, an online news site that tracks state governments. Seven more states have sharply increased " sin taxes" on cigarette and alcohol, and nearly a dozen have raised fees on everything from car registration to professional licenses to court fees. At least a dozen more states are now considering hiking their own taxes and fees to make up for the lost revenue.

Public education is also suffering from severe government cutbacks, forcing many public colleges and universities to hike tuition and boost student fees at an alarming rate. The University of California became the poster child for skyrocketing tuition last week, when it sparked a near riot among its students after approving a 32% increase (or about $2,500 a year) in tuition starting next fall.

The good news -- if there is any good news to be had in this fiscal mess -- is that states may now be experiencing the worst of the fallout from the Recession. Traditionally, state revenues are a lagging indicator of the strength of the country's overall economy, and state budgets are typically hammered the hardest in the year or two after a recession officially ends.

Still, many states are forecasting continued declines in revenues and some worry whether tax collections will be hit even harder when the federal government stops pumping stimulus dollars into the economy. Either way, state residents can expect to pay more in taxes and fees -- and college will become even less affordable for students than it is already -- until this economy "recovery" translates to tax dollars in the states' coffers.

Terri Cullen is an award-winning financial journalist. She was one of the original team of editors who helped to launch The Wall Street Journal Online. Terri is also the author of "The Wall Street Journal. Complete Identity Theft Guidebook." Read her bio to learn more about her.

Blog made possible with support from the Corporation for Public Broadcasting.

Cost Containment and the Senate Health Care Debate

2009-11-20T23:36:44Z

Let's face it, cutting costs is as much fun as dieting. Maybe less.

Which may explain why health care reform is such a daunting topic. The Senate bill that is facing a key procedural vote on Saturday is filled with complex policies to "bend the cost curve" on health care. There is a commission on costs, a tax on high-cost insurance plans, and a variety of new payment options for medicare.

The complexity implies more certainty than reality to the health care cuts. Congress is changing incentives and putting in place new structures that have a chance to save money, but are not proven to do so. It is hard to tell the voters that we have to try to cut costs, but don't really know how to do so.

The other issue, of course, is that the Senate bill expands coverage to millions of Americans. Budget hawks worry about combining guaranteed access with uncertain savings. Progressives fire back that it is unfair to squeeze out costs without first bringing everyone into the system.

These are the real issues. I wonder how much they will be debated this weekend?

Health Care: The Filibuster

2009-11-20T17:23:09Z

There's a great line in an early scene of the musical "1776". Richard Henry Lee of Virginia has introduced a resolution declaring the 13 colonies "free and independent states" and the Second Continental Congress is deciding if it should consider the proposal and open debate. A tied vote is broken by Stephen Hopkins of Rhode Island, who declares, "In all my years I never seen, heard, nor smelled an issue that was so dangerous it couldn't even be talked about. Hell yes. I'm for debating anything."

There were no transcripts of the proceedings of the Continental Congress. Playwrights Sherman Edwards and Peter Stone used writings by and about the founders for much of the dialog, but I've never been able to find anything to prove that Hopkins really said that, or anything resembling it. Still, even if we do not know what the founders said, we know what they did. They did debate and approve the resolution, even though their action put them individually at grave personal risk as it moved their constituants from insurrection to outright war.

]]> Fast-forward to the Senate of the United States of America, which may this weekend decide if it should even debate the matter of health care reform. Those who oppose the pending legislation lack the courage of the founders. They threaten a filibuster.

The filibuster (from a Dutch word meaing "pirate") is not in the Constitution. The filibuster is a creature of the Senate's own rules, which allow a member to take the floor and hold it indefinitely, effectively keeping a measure from ever coming to a vote. To break a filibuster and limit debate, the Senate must invoke "cloture", an act which requires 60 votes.

You may recall "Mr. Smith Goes to Washington", a 1939 Frank Capra film. Jimmy Stewart is a young idealistic Senator, appointed as a seat holder by political machine leaders and expected to vote as they direct. Instead, Smith stages a filibuster to block a corrupt bill, holding to floor to the point of physical collapse.

Like so many things in our modern society, the Senate has made the filibuster easy. Today a Senator need not hold the floor; he needs only to declare his attention to do so. That keeps the issue off the agenda and allows the Senate to proceed with its other business. It also deprives us of our right to hear the pros and the cons and to see where our elected leaders stand.

The Senate Majority Leader, currently Harry Reid of Nevada, has the power to require an old fashion filibuster on any issue. If the opponents of health care reform filibuster the motion to open debate I hope he does just that. Let them bring out their cots and their diapers, and lay in a good supply of reading material. Let them hold the floor until they drop and let them do it all in clear view of the television cameras. Let the people see who believes health care reform is an issue so dangerous it can't even be talked about.

Richard Branson and the "It" Factor

2009-11-19T23:42:25Z

After meeting billionaire Richard Branson in the flesh for the first time on Thursday, a line of dialogue from the 1962 movie "Gypsy" comes to mind: "In this business, you either have it -- or you've had it."

The "it" is...charisma? Charm? Star Quality? In the best sense of the phrase, perhaps it's a "cult of personality" -- that ability of one individual to rally a group of people, all with their own opinions and personalities, and glue them together in a way that allows the achievement of seemingly impossible business goals.

Branson's name is usually mentioned in the same breath as another word: entrepreneur.

]]> It's no accident that some of the biggest business 'personalities' I've met in my time with NBR have been classic entrepreneurs. Some are not well known. Few people outside the homebuilding industry know the name of Itchko Ezratti. He's the founder and CEO of GL Homes -- a company he grew into one of the larger privately-held homebuilders in the US. His bankers probably need lead-lined suits to shield themselves from Ezratti's contagious radiation of confidence and optimism.

I had the pleasure to interview Frank Perdue once, years ago. He walked into NBR's headquarters without any kind of retinue. He didn't need PR handlers. He spoke simply, yet powerfully. His voice was raspy, yet there was an earnest power behind it. It was easy to see how convincing he could be if you were a supermarket wholesale buyer and your chain had not yet gotten behind the Perdue brand.

And I'll never forget Ted Turner. I never actually interviewed him, but he spoke at a conference in Boca Raton in the 1990s, not long after selling his media empire to Time Warner. A bunch of us reporters tried to get him to slow down for a quick soundbite, to no avail. All I can say is, Ted Turner walking down the hallway of the Boca Raton Resort & Hotel is the same Ted Turner you see now -- rude, even obnoxious, and yet, powerfully charming too.

Compared to Ted Turner, Richard Branson is a much easier interview. They're at opposite ends of the personality spectrum, yet both have been equally successful in starting businesses and motivating their executives and employees to success.

Huh? Prices are down?

2009-11-19T19:42:39Z

Official government data says consumer inflation has fallen .2% in the past year. I don't know about you, but it doesn't seem to me like prices are falling.

It came as a total surprise to me that grocery prices have fallen nearly 3 percent in the past year, one of the biggest category declines. I would have guessed prices at the supermarket were up.

But it turns out, prices for nearly every aisle have been coming down, including beef, milk, eggs and fruit. If you're curious about the exceptions, they're breakfast cereals, sugar and carbonated drinks.

Which brings us back to my question, why haven't shoppers noticed such widespread price declines?

]]> Part of the reason, I think, is that a 3% annual decline doesn't translate into much in any one individual grocery purchase. Plus, most people don't buy the exact same basket of goods week after week, making comparison difficult.

But, I also think it has to do with the fact that people pay closer attention to price increases than decreases. Fuel costs have risen sharply in the past few months. Ditto for have health care. Those increases have attracted far more attention than any small benefit in price declines.

Do you agree? Do you have a different take? Were you surprised to learn grocery prices have fallen?

Want to be a Landlord? Take it from Me: Just Say No!

2009-11-19T16:18:17Z

Tales from my 20 years as a landlord: One former tenant phoned months after disappearing into the night -- and leaving a horrific mess -- to berate me for letting the city junk the broken-down car he'd abandoned out front.

Another tenant called to have me referee a dispute with a plumber. I could hear his wife and the plumber screaming so viciously in the background that I thought about calling 911.

And, of course, I had tenants who fell behind in the rent, racked up huge, unnecessary repair bills, clogged the toilet with latex objects, set up meth labs in the basement and used the disposal to get rid of dead bodies.

Okay, those last two weren't real -- just the stuff of my nightmares. Every single night.

]]> I'll stop here, before I seem like a moustache-twisting villain from a silent movie. The point isn't that I had bad tenants. In fact, for the most part I had really, really good ones. The point is that being a landlord is miserable even under the best circumstances.

Yet lots of people are surely considering this move. Renting your property out may look like a good option if you cannot sell your home and need to relocate for a new job, or if you have a chance to trade up.

That's how I got into the game -- by seeking richer pastures when an economic slump hit the city I was in.

My first rental was a house I'd bought in Minneapolis with a friend, around 1980. We rented out our third bedroom, and after I decamped for Dallas two years later my room was rented as well.

My next "unit" was the garage apartment behind my house in Dallas. This worked out pretty well while I lived there, though I do remember a tenant coming into the backyard to beat a carpet while I was having a candlelit diner on the deck with a young lady.

The car-abandoner took over the garage apartment after I moved to Philadelphia in 1986. I also rented out the house. This long-distance landlording was financially challenging because I had to hire pros for all the little fix-ups I'd normally do myself.

In Philadelphia I ended up with two units -- my house and my wife's former house. Both were rented out when we lived in Manhattan in the early '90s. During this period, we were tenants at the same time we were landlords. In fact, the places we lived in included a roach-infested walk-up on 122nd Street that was far inferior to the stone and brick three-bedroom Tudor we were renting out in Philly.

I referred to myself as the "hippie landlord," because, as a child of the 60s, I kind of felt that property was theft and business should be done on a handshake. I required minimal security deposits, which I almost always returned. I was a soft touch for tenant requests, installing expensive security systems and garage door openers even though the lease didn't require me to. I let the rent slide for months when one tenant was preoccupied with his wife's terminal illness. I dropped everything to deal with unanticipated crises, like the squirrel that got into a master bedroom.

So why was the whole experience so awful? Mainly because it took so much work, money and emotional energy, and was never very profitable. And because, no matter how well-meaning the two parties, the relationship between landlord and tenant has built-in conflicts, like cats and dogs.

As a homeowner, I'll go for years tolerating a lock that needs a little jiggling to open. Before calling a plumber, I'll spend hours trying a plunger and snake. But the tenant, who won't expend any time, effort or money to resolve these problems, has no reason to live with them for another minute.

Of course, there are lots of other issues to consider before taking the life-altering plunge into landlordship -- issues involving the real estate market, alternate investments and taxes, for instance. I'll deal with those next time.

But the threshold question is: can you live with the aggravation?

At its peak, my real estate empire had four units -- two in Texas and two in Philadelphia. By the late '90s my wife and I had a young son and I wanted to end the 70-mile round trip to Philadelphia to deal with every squeaky hinge. The Texas place was overdue for an expensive exterior paint job. The market perked up and I sold everything.

And never, not for one moment, have I regretted that I did.

Blog made possible with support from the Corporation for Public Broadcasting.

The Evolution of Goldman's Apology

2009-11-18T21:38:08Z

The Goldman Sachs apology has been evolving over time. Here is what Goldman CEO Lloyd Blankfein told me at the White House in March:

"There was no doubt there was bad behavior and over leverage on Wall Street, like there was over leverage in every aspect of the economy."

In June, here is what Blankfein said:

"We participated in the market euphoria and failed to raise a responsible voice.

This week:

We're a leader in our industry and we participated in things that are clearly wrong and we have reasons to um, regret and apologize for and we're subject to. And some of this is real and some of this is extrapolated, but all of it can't be good for a firm that has to...for a financial service firm that sells its reputation in part that we will take care of your needs and not draw attention to ourselves.

Why Weak Home Construction Hampers Recovery

2009-11-18T20:52:25Z

Seems like every day there's new data out that suggest the U.S. economy is sputtering back to life, but one important driver of economic growth -- new home construction -- continues to hamper the recovery.

Housing starts tumbled 10.6% in October to a seasonally adjusted annual rate of 529,000 from a month earlier, the Commerce Department reported. The number startled economists, who'd forecast a 1.7% increase in new home groundbreakings. The disappointing October report followed September's 0.5% increase, which also came in well below economists expectations.

Why is new home construction so important to the economy? Historically, housing starts are among the first indicators to show strength in the early stages of an economic recovery. (Housing starts are the total number of new housing units -- single-family homes and multi-family apartment buildings -- that have begun to be built in any given period.)

]]> New home construction drives economic growth on many levels. For example, building companies need to buy raw materials for new homes (boosting profits at companies that produce raw materials). Then builders need to hire workers to build the new homes (easing unemployment). Meanwhile, buyers of new homes help to spur the real-estate and lending industries.

And after buyers and renters move in to their newly built residences, they typically start spending -- furniture, electronics, appliances, lawn and gardening equipment, you get the picture. Since consumer spending makes up about 70% of the U.S. gross domestic product, that new-home shopping spree is crucial to supporting the economic recovery.

The slowdown in new home construction shouldn't be surprising considering the housing market as a whole is still in the very early stages of recovery. Lending continues to be tight, making it tough for home buyers to get mortgages. And many would-be buyers can't seem to close the deal because lenders are balking at low home appraisals. (An appraisal reassures the lender of the home's fair market value before it will approve the loan.) The National Association of Home Builders, a trade group, reported this week that one-third of members surveyed indicated they have recently lost sales due to low home appraisals.

Still, over the summer builders had been ramping up production of new homes in response to the federal government's $8,000 first-time homebuyer tax credit. In September and October, there was a lot of uncertainty over whether that tax credit would be extended, so naturally builders would err on the side of caution and ease back on housing starts.

I would argue, tax credit or no tax credit, that now is not the time to be cranking out new homes. There's already a glut of homes and apartment buildings sitting vacant on the market: The U.S. vacancy rate stands at 7.8%, a 23-year high, according to real-estate research firm Reis Inc. (Where'd everybody go? It stands to reason the traditional new home buyers are either hunkering down in their apartments, or moving back in with Mom and Dad, until their finances improve.)

Indeed, with so many homes on the market already, it looks like this time around the economy won't be able to rely on the home-building industry to lead it out of recession.
Readers, have you seen a pickup in new home construction in your area? Is the glut of vacant homes and apartments having any impact on your home's value?

Blog made possible with support from the Corporation for Public Broadcasting.

Retirement Planning: Two Rules and Some Frightening Numbers

2009-11-17T17:03:15Z

Ever hear of the Rule of 72? How about the Rule of 300?

They are easy ways to get a rough idea of whether your investments will grow big enough for your retirement.

When I say "rough," I mean very rough. But there's no perfectly precise alternative, because all projections rely on guesswork about investment return, inflation and the number of years you'll be retired.

]]> It's pretty well established that Americans aren't saving enough for retirement. In fact, the financial services industry goes to great expense to continually rediscover this fact, churning out studies and press releases with dire warnings meant to get people to turn more money over to brokerages, fund companies and other money managers.

Each of us can help solve this national savings problem by getting our own situation under control.

So the first step is to estimate how much money you'll need in retirement -- which gets us to the Rule of 300. It says that producing $1,000 in monthly retirement income requires a $300,000 nest egg. That's no typo - a three and five zeros.

Shocking? Absolutely! Here's the reasoning: A $1,000-per-month income is $12,000 a year, and that's 4 percent of $300,000. In other words, if you had $300,000 in savings and investments, you could withdraw $12,000 a year.

This seems like an awfully small number, but a 4 percent annual withdrawal rate is widely used by financial experts.

They assume the investments are actually earning around 6 or 7 percent in a mix of stocks and bonds. But you cannot withdraw all of each year's earnings because some must be reinvested to counter the effects of inflation, which has averaged around 3 percent a year over long periods.

A 3 percent inflation rate means things that cost $1 today will cost about $1.80 in 20 years. So your annual withdrawals will have to get bigger each year. If you had $300,000 in investments, you'd take out $1,000 a month the first year, $1,030 the second year, $1,060.90 the third.....$1,800 the 20th and $2,400 the 30th.

I won't belabor the math, but you probably wouldn't be able to live on interest alone. Eventually, these growing withdrawals might require some money from principal. After 30 years or so, there could be nothing left.

It's no easy feat to save $300,000, and it's far, far more difficult to save $900,000 or $1.2 million if you'll need $3,000 to $4,000 a month. But hopefully this nest egg is just supplementing what you'll get from Social Security and a pension, if you're one of the dwindling number of people who has one. And if your home is paid for and your kids are grown, you might be able to live on less in retirement than you do now.

So what's it take to build a nest egg? This is where the Rule of 72 is handy. It describes how long it will take for compound interest to double your money. Divide 72 by your investment return to find the number of years to double. Or Divide 72 by the number of years you have to double to figure the rate of return you'll need.

For a dollar to grow into two dollars it would take a 7 percent annual return for 10 years, or a 10 percent return for seven years. Doubling in five years would take a 14.4 percent return....

If you have $150,000 in retirement savings earning 7 percent, it will take 10 years for it to grow to $300,000, 20 years to get to $600,000 and 30 years to reach $1.2 million - enough for $4,000 in monthly income. Of course, you'd reach your goal faster by adding new savings to the mix.

They're not pretty, but these are the facts. There are only so many ways to make the numbers work in your favor: save a lot, get a bigger investment return, work longer, find a cheaper way to live in retirement.

Blog made possible with support from the Corporation for Public Broadcasting.

Obesity and Hunger in America

2009-11-16T22:47:55Z

It seems somehow fitting to write this as the President is visiting China. After all, I am old enough to have had my mother tell me: "Eat your food. People in China are starving."

Well, it appears that here at home we have too many people who eat far too much and too many people without enough to eat.

According to the Agriculture Department, 17 million U.S. families had trouble finding enough food over the course of the year. By the way, one-third of the country is also obese.

That's 72 million people who have too much to eat and 49 million who may not have enough to eat.

Beyond the humanitarian issues, why does this matter?

]]> It matters, because it is difficult to see how we can remain a competitive nation if we are saddled with huge health bills. The more we spend on preventable diseases associated with obesity, the less we have to invest so we can compete with the rest of the world.

And then there are the one million children who go hungry in this country and another 11 million or so who live in families where food sometimes runs short.

Can we compete with China and India if one out of five of our children worry about going hungry at night?

Fiscally Fit: The Art of the Cover Letter

2009-11-16T20:39:52Z

Authored by Stephanie May, NBR Summer 2009 Intern

In keeping with last week's theme of wondering where in the world I'll end up upon my graduation, I have decided to be an adult and be proactive about the situation. I am embarking on a very long and tedious journey. Ladies and Gentleman, I have begun the job hunt. So far, it's not bad! I'm actually really excited as I come up with plans A to Z for my future. But as I do this, I have realized I'm going to have to face one of my absolute biggest fears -- writing cover letters.

You would think writing cover letters would be a breeze for your Fiscally Fit blogger, but on the contrary, I find them almost impossible. The more I want the position, the more I struggle. What can you possibly say within the confines of an 8x11 piece of paper to make your potential employers realize how absolutely perfect you are for the job? The pressure is unbelievable!

]]> It's probably good that I want to be a broadcast journalist because I find that expressing myself in person is MUCH easier than expressing myself in writing. In person, you have more freedom to explain yourself and to show them why you're so passionate about accounting, or why you'd be the best police officer they've ever had.

But, writing a letter detailing how great you are isn't easy. As you sit down to list your stellar qualities, do you feel like as much of a jerk as I do?

Then there's the problem of how formal or how conversational to be. It's a formal business letter, so clearly you're supposed to edge towards the formal. But as you all know, I write the way that I think...and my thoughts don't really follow a three-paragraph format. One of two things usually happens. I either sound stilted and overly stiff, not allowing any of my personality to shine. Or, I sound gushy and silly, using words like "passionate" and "excited" over and over again. But the problem is that I AM passionate. I AM excited. I really really really want the job! Why can't I just say that?

The worst part about my trouble with cover letters is I have a feeling I'm going to be writing hundreds of them in the next few months. So I have to bite the bullet and figure out a way to make it through. I need to come up with a system -- much like I need to come up with a system for budgeting. I knew facing my cover letter fear wasn't going to be easy, so I sought some help. I consulted my favorite journalism professor, and he shared a pearl of wisdom so epic that I almost fell off my chair.

He Googled "cover letter writing."

The takeaway: Google solves everything!

Here are a few tips I was able to find out from my new BFF, Google:

Unfortunately, you are really supposed to use a three-paragraph format. In the first paragraph, say why you are writing and what position you are hoping to get. Also include a little nugget of information about the company to personalize it. That way they know that you've done your homework, and they know that you didn't just print 100 identical cover letters and tell people all over the world that this is the "one and only job of your dreams."

The tips for the second paragraph really saved me. Look up the job description and then format the second paragraph by telling them how you have each of the attributes they're looking for. Don't forget to back it up with evidence. That way, after reading your cover letter, they know that you have everything they want in a Kindergarten teacher!

Lastly, thank them for considering you, and tell them how you're going to follow up. (In 2 weeks by email?) Sign "respectfully yours," and voila! You're done.

This sounds easy enough. I think the reason I was having such a hard time is because I was looking at the cover letter as my one and only shot to show them who I am. When really the letter is just supposed to introduce your resume. I suppose my desire to include my entire life story in three paragraphs was a bit far fetched.

So now, with a bit of a plan formed, I'm off to conquer the dreaded cover letter. Let me know if you have any other tips!

Fiscally Fit... I'm getting a job!!

Follow me on Twitter @FiscallyFit!

Sales Reports Raise Hopes for Holiday Shopping

2009-11-16T20:30:14Z

Apparently consumers are still willing to open their wallets, despite the fact so many are out of work. Retail sales in October rose 1.4%, outstripping the 0.9% increase economists had expected.

The retail-sales report reflects federal-government estimates of all receipts from retailers that sell durable goods (think cars, furniture, washer and dryers) and nondurable goods (your food, gasoline, party supplies, gardening materials). Today's U.S. Census Bureau report showed a surprising jump in auto sales last month, despite the expiration of the federal government's "Cash for Clunkers" stimulus program. Even more encouraging, if you exclude cars, retail sales were up 0.2% in October, rising for the third consecutive month.

Why do retails sales matter? Well, investors keep close tabs on retail sales because they have an immediate impact on stock prices. As I've noted in other blog posts, consumer spending makes up about 70% of the U.S. gross domestic product (GDP) -- the broadest measure of America's economy. Since consumer spending plays such a large role in GDP, retail-sales data help investors determine whether the economy is slowing down or picking up.

]]> Rising retail sales also means retailers and goods manufacturers will generate higher profits, which translates to higher stock prices. On the other hand, declining sales suggest that consumers are reluctant to spend due to worries about their finances, and so companies that make and sell goods suffer (as do their stock prices).

Bond investors scour retail-sales reports even more keenly. Strong retail sales point to a pickup in the economy, which could lead to inflation. (Inflation erodes the value of fixed-income investments such as bonds.) Signs of a weakening economy, meanwhile, prompt many investors to sell stocks and invest instead in the relative safety of bonds.
But it's not just investors who are affected by changes in consumer spending. Rising retail sales creates jobs. When consumer spending is strong, retailers need to hire more salespeople and warehouse workers to keep up with demand. Strong retail sales also means retailers need to restock their shelves more often, driving up orders for new goods. Manufacturers then must hire more assembly-line workers -- though unfortunately for the U.S. labor market, much of that hiring takes place overseas.

So what does Monday's retail-sales report say about the direction of the U.S. economy? Not much.

Retail sales are up from earlier in the year, but much of that shopping has been spurred by federal stimulus programs, such as Cash for Clunkers, the home-buyer tax credit and the federal extension of unemployment benefits. Look no further for the influence of stimulus programs than at September retail sales, which were hit hard by the end of "Cash for Clunkers." Retail sales in September were revised sharply lower to show overall sales down 2.3%, compared with the 1.5% decline originally reported. And even October's 0.2% increase in retail sales excluding autos was less robust than the 0.4% increase economists had expected.

Still, consumers continue to shop despite rising unemployment, raising hopes that the traditional U.S. holiday-shopping season this year will be less dismal than some have predicted. The National Retail Federation, a trade group, expects overall holiday retail sales this year will be down 1% from a year ago, though research firm Forrester Research Inc. is predicting Internet holiday sales will increase 8% this season as cash-strapped shoppers go bargain-hunting online.

What say you, readers? Are you planning on cutting back on holiday purchases this season due to the economy? Do you plan on comparison-shopping online this season to get the best deals, or will you wait until the last minute to hit the brick-and-mortar stores for bargains?

Blog made possible with support from the Corporation for Public Broadcasting.