Richard Drew/APVerizon is buying AOL for about $4.4 billion, advancing the telecom's push in both mobile and advertising fields.By Noel Randewich
NEW YORK -- U.S. stocks ended lower Tuesday after a recent run-up in global bond yields unsettled investors already concerned about an eventual Federal Reserve interest rate hike.
Stocks recovered from steeper losses after Treasury yields crept back slightly from six-month highs.
The recent, unexpected leap in yields on U.S. Treasuries and German Bunds has been a thorn in the side of U.S. stock investors for several days.
"In the short term, the market is a hostage to interest rates, said Jim Awad, managing director at Plimsoll Mark Capital. "To the extent you have an increase in interest rates that the Fed doesn't control, you're getting an unwanted tightening in the financial markets."
Benchmark 10-year U.S. Treasury yields touched their highest since mid-November earlier before coming down slightly. Elevated U.S. yields mean higher borrowing costs, which can make it harder for companies to expand.
That rise in borrowing costs comes as investors attempt to gauge when the Fed will deem the U.S. economy strong enough to begin raising its own interest rate for the first time since 2006.
The Dow Jones industrial average (^DJI) fell 36.94 points, or 0.2 percent, to end at 18,068.23. The Standard & Poor's 500 index (^GSPC) lost 6.21 points, or 0.3 percent, to finish at 2,099.12 and the Nasdaq composite (^IXIC) dropped 17.38 points, or 0.4 percent, to 4,976.19.
If borrowing costs eventually rise enough to threaten the U.S. economic recovery, the Fed will have few options at its disposal since its key interest rate is already near zero, Awad said.
The growing uncertainty about interest rates comes as the S&P 500 trades near 17 times expected earnings, expensive compared to its 10-year median average of 15 times earnings.
Apple (AAPL), the biggest contributor to losses on the Nasdaq and S&P 500, fell 0.4 percent.
Eight of the 10 major S&P 500 sectors were down, with the materials index leading the declines with a 1.03 percent fall.
The S&P energy index gained 0.44 percent as oil prices rose about 3 percent due to a weaker dollar and conflict in Yemen.
Pall Corp. (PLL) rose 19.44 percent after The Wall Street Journal reported the water and air filter maker was in the final stages of an auction to sell itself.
Declining issues outnumbered advancing ones on the NYSE by 1,679 to 1,367, for a 1.23-to-1 ratio on the downside; on the Nasdaq, 1,556 issues fell and 1,187 advanced for a 1.31-to-1 ratio favoring decliners.
The S&P 500 posted 4 new 52-week highs and 6 new lows; the Nasdaq Composite recorded 59 new highs and 60 new lows.
About 5.9 billion shares changed hands on U.S. exchanges, below the 6.8 billion daily average for the last five sessions, according to BATS Global Markets.
What to watch Wednesday:
At 8:30 a.m. Eastern time, the Commerce Department releases retail sales data for April, and the Labor Department reports import and export prices for April.
The Commerce Department business inventories for March at 10 a.m.
Earnings Season
These selected companies are scheduled to release quarterly financial results:
As you get older, it may seem less and less prudent to carry life insurance. You could be retired, own your home outright and have kids who are self-sufficient. While for most people insurance is intended to protect you and your loved ones if you die prematurely, there are some financial situations where you may still need to consider if you need life insurance, how much life insurance you need and what your policy costs regardless of your age. Before you let your policy lapse or stop making payments, consider the reasons you might still need life insurance as a senior.
1. If You're in Debt or Still Working
If you are still making payments on real estate deals, student loans or credit card debt, it's a good idea to consider whether you still need life insurance. A term life policy that expires when your payments end is often recommended so you have coverage until the point of becoming debt-free. This can also make sense if you continue to work, even part time, to supplement your savings. While it depends on how much you earn and how much you need to save to make up income needs, you might need life insurance if your part-time job earnings are helping meet monthly costs for anyone else.
2. If You Have Dependents
Whether it is a younger spouse, sibling, disabled or non-adult child, or even your own parents, if you need to provide ongoing support to a loved one, you might want to continue your policy. Having dependents who rely on your financial support is the most common reason an income-earner needs life insurance.
3. If You're Leaving a Charitable Legacy
If you are considering leaving a generous sum for your alma mater or favorite organization, you can use a life insurance policy to help benefit both you and the recipient. Instead of making annual donations (or in addition to them), a life insurance policy can help you leave a financial legacy.
4. If You Have an Illiquid Estate Subject to Taxes
If you have family business, depreciated stocks or valuables that you do not want your family to sell or pay taxes for inheriting, a permanent or cash-value life insurance policy can provide an immediate source of cash for your heirs.
5. If You Want Another Investment
Cash-value life insurance can be an investment if you have a lot of savings and do not like risk. Because of the tax-free growth and advantages of life insurance, these policies may be a smart way to diversify your investments.
Did your last box of contact lenses seem unusually expensive? Don't bother shopping around for a better price, because you probably won't find it.
Johnson & Johnson, Alcon, Bausch & Lomb and Cooper Vision -- which together account for 97 percent of all contact lenses sold in the United States -- have set price minimums for many contacts, so you're unlikely to find them any cheaper, no matter how hard you look.
"The manufacturers say the policies are intended to simplify the market and shift conversations between patients and optometrists away from the topic of pricing and toward the clinical benefits of their contact lenses," The New York Times said.
Companies like Costco and 1-800-Contacts, which previously sold lenses at deep discounts to consumers, say the contact lens manufacturers' policies amount to illegal price-fixing that limits competition and costs consumers big bucks, the Times noted.
Several states are considering legislation that would prohibit contact lens manufacturers from setting retail price minimums. Consumer class action lawsuits have also been filed against contact lens manufacturers.
Costco Suing J&J
Costco is suing industry giant Johnson & Johnson for alleged antitrust violations. Richard Chavez, a senior vice president at Costco, told KGW that the warehouse retail chain has been forced to increase its contact lens prices by 26 percent. He said the 39 million American consumers who wear contact lenses "cannot go to any retailer of any size and try to buy their contact lenses at a lower price, which we used to do every day for many, many years."
Although lens manufacturers claim the price policies are merely simplifying the market, opponents claim they're intended to win approval from optometrists who decide which contact brand their patients will use. The Times said: "Unlike medical doctors who prescribe a drug and then send their patients to a pharmacy to fill it, many optometrists make money on both the eye exam and the glasses and contact lenses they sell in-house. But ever since a 2003 law required optometrists to give patients their contact lens prescriptions free of charge, many of those sales have moved to online sellers and discounters like Costco, who often charge less."
So if all retailers are charging the same price for contacts, it would be easiest to simply order from your optometrist's office. This has not gone unnoticed by optometrists, the Times noted.
Gary Gerber, an industry consultant who hosts the industry podcast "The Power Hour," said in an episode last fall that the policies were "the coolest thing to happen in contact lenses in the last 20 years." He added, "It allows the doctors to compete and be profitable."
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You've probably heard that it's generally considered safe to withdraw 4 percent of your savings each year in retirement and adjust that initial amount for inflation. This popular 4 percent rule comes from a study that determined how to draw down a retirement portfolio without running out of money too soon. If you save up 25 times your annual expenses, drawing down 4 percent of your savings each year is likely to cover all your bills throughout retirement. However, it's better to think of the 4 percent safe withdrawal rate as a guideline, rather than a rule. Here's why the 4 percent withdrawal rate should only be used as a planning tool.
1. Your Spending Will Probably Change in Retirement
The rule assumes you know how much you are going to spend in retirement. You need to have a good handle on your retirement expenses to determine how much you need to save to make the 4 percent rule work. Many people use their current expenses to project a portfolio value they need to achieve. But expenses in retirement may not resemble the costs you incur while working. You'll probably be able to get rid of your commuting costs, but you might face new travel or entertainment costs in retirement. And there will certainly be health care costs and other emergency expenses. Retirement will have plenty of unexpected costs that you have no way of predicting before you retire.
2. Your Spending Probably Won't Track Inflation
While the 4 percent rule allows you to adjust your withdrawal amount for inflation each year, your personal expenses might not match the overall inflation rate. Retirees often use an increasing amount of health care services, and health care costs often rise faster than inflation. And some years you will get a big car repair bill or need to pay for extra dental care expenses. Real world spending will fluctuate, and you will need to find a way to cope with it.
3. You Will Be Tempted to Spend More in Bull Markets
It's only natural to be looser with your wallet when you feel flush. However, the problem is that you are deviating from the plan, which can drastically change the sustainable withdrawal percentage. The 4 percent rule requires that you stick to it regardless of how the market performs, but not everyone has the ability to ignore double digit investment gains to stay the course.
4. You Should Decrease Your Spending in Bear Markets
Withdrawing less from your portfolio when the value is down will help it to recover faster. This will also counteract the increased spending of the good times and allow your money to last longer. But you are again changing the game plan when you no longer follow the fixed percentage determined at the start of retirement.
Aiming to save until you accumulate 25 times your annual expenses is a good goal to shoot for. But almost no one will be able to follow the 4 percent rule exactly. There's a huge temptation to spend more when your investments do well and cut back when they perform poorly. And inflation adjustments might not track your personal bills or sudden expenses. That's the primary reason why you can't blindly follow this rule. The good news is that you can tweak the rule a little bit and still come out OK.
Pretty much everyone who doesn't retire at the worst possible moment can take out a little more or less than 4 percent without drastically changing their chances of running out of money too soon. Plus, the best defense every retiree possesses is the ability to adapt when the situation calls for it. Those who are flexible can probably spend a little more in some years as long as you are able to deal with a spending cut in other years.
If you ask me, shopping online is the way to go. No need to pack the kids in the car; no need to fight the crowds in the store. All you need is yourself, your computer and a piece of plastic. And in some cases, you may even be able to do without the plastic.
In fact, paying without plastic is No. 10 on our list of ways to get a discount on everything you buy online. Keep reading to see what other strategies made the cut.
1. Chat with customer service. Even people who regularly haggle for purchases in person forget they can negotiate online. The best way to ask for a discount is to open up the chat box on the retailer's website.
Sometimes, if you leave your shopping window open long enough, a chat box will pop up asking if you need help. Other times you may need to unearth the chat option from the contact page of the site.
Once you get a representative online, tell them you're shopping on a couple sites and looking for the best deal. Ask if any discounts are currently available. If none, ask if the company ever does free shipping. There's no guarantee of getting a discount this way, but it's a tried and true method that has worked in the past for me.
2. Give the retailer a call. Maybe you're on a site that still lives in the dark ages and doesn't offer customer service via chat. In that case, the phone is your new best friend.
It's the same routine as when you're chatting. Explain you're shopping for a deal, and ask if they have any discounts available or if free shipping is offered. The worst they can say is "no."
3. Check out coupon code sites.RetailMeNot is the very first place I look before shopping online. I find it tends to be the most comprehensive and accurate source of coupon codes on the web. You can also check out ShopatHome, CouponCabin and FatWallet for savings codes.
If you're not familiar with coupon codes, they're usually a phrase or a string of numbers and letters that you enter on the checkout page for an instant discount.
4. Install an extension on your browser. When it comes to using coupon codes, you can save time by installing an extension on your browser that will automatically search for savings. Honey is the most popular option, but there are others such as Coupons at Checkout.
You could also add an extension that will search for better deals while you're shopping online. InvisibleHand is one example. It will comb through 600 retailers to see if a better price is available elsewhere.
5. Abandon your shopping cart. It may not surprise you to know that online retailers are tracking your every move. And it's undoubtedly distressing to them to see someone with a cartload of stuff close the tab and move along. That's probably why you may find a coupon code landing in your mailbox a day or two after you leave your cart.
To get this trick to work, you need to be logged into your account so the retailer knows who abandoned the cart. Then put your items in the cart and leave the site. The list of retailers who offer codes to those with abandoned carts is likely fluid, but RatherBeShopping has a list of 17 stores that have been known to dole out the discounts.
6. Sign up for the mailing list. With sites such as RetailMeNot, shoppers can easily share codes with others. However, some stores have made that difficult by issuing one-time use codes.
To get these, you need to be on the VIP list, aka the mailing list. Sign up to receive newsletters from your favorite retailers so you can get discount codes and sales announcements delivered straight to your inbox. Just be sure to use a secondary email address so your primary account isn't overwhelmed by these messages.
7. Use discounted gift cards. Another surefire way to save money, even when there isn't a sale or coupon code in sight, is to use a discounted gift card.
Why would anyone ever sell a gift card for less than face value? In many cases, they come from people who've received them as gifts and want to convert them to cash. Having $40 in their pocket can be more valuable than having a $50 gift card to a store they'll never visit.
While some people sell discounted gift cards on eBay and Craigslist, I'm wary of handing over my cash for cards that haven't been verified. Instead, I prefer to purchase through websites like CardCash or CardPool, which offer some buyer protections. To compare the discounts offered on gift card sites, go to GiftCardGranny to quickly see what's available.
Finally, warehouse club members can look online or at their local store for discounted gift cards. Costco, Sam's Club and BJ's all have a selection of discounted cards that cover everything from dining to travel.
8. Shop through a cash-back website. Using a coupon code and paying with a discounted gift card is a great way to double dip on your savings. On some sites, you can triple dip by shopping through a cash-back website.
Ebates is my favorite cash-back site, but other sites, such as ExtraBux, are popular, too. Cash-back amounts can range from a fraction of a percent to up to 30 percent for some retailers. You simply need to create an account and click through it to the retailers. After you make a purchase, the cash-back site will credit your account, usually within 30 days. Once you reach a certain minimum amount, such as $10, you can cash out via Paypal or opt to receive a check in the mail.
Similarly, you could use a site like MyPoints to earn points that can be redeemed for gift cards. And don't forget about the shopping portal for your favorite credit card, which can be a way to earn bonus points or miles.
9. Share on social media. Companies like Social Rebate and ReferralCandy are in the business of setting up companies with referral programs that let customers gain discounts simply by sharing their purchase online. While not standard on most major retailer sites, you can find the option to share for a discount at some smaller stores.
Speaking of social media, sending a message to a company on Facebook or Twitter can be another option to request a discount code if you strike out on chat or over the phone.
10. Pay with points. Our final way to get a discount on everything you buy online is to leave the plastic behind and pay with points or rewards instead.
This option is one that is just starting to gain traction, but I wouldn't be surprised if more rewards programs and retailers jump on board in the coming years. Here are a couple of programs currently available:
Find this article useful? Be sure to share it on your Facebook page. And if you have other ideas for saving money on your online purchases, we'd like to hear them. Share in our comments section below or on our Facebook page.
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Getty ImagesOne expert says shoppers are probably drawn to certain stores because of the stereotype they represent.By Geoff Williams
Plenty of consumers open their hearts and wallets to a grocery store that has a reputation for high-quality foods, and then never shop anywhere else.
In fact, Jim Abbott, a sales and marketing manager in Cleveland, Ohio, probably speaks for a lot of people when he says: "I avoid the discount grocery stores like the plague, only going in if I'm in a pinch."
He says he goes to Heinen's Grocery Store, a supermarket chain in Greater Cleveland and Chicago. "While Jif peanut butter is the same, regardless of the retailer, I much prefer a high-end grocery store with staff wearing uniforms and who are willing to help find you what you need," Abbott says.
Abbott has clearly given this some thought, but for consumers blindly buying groceries from a favorite store and flashing condescending looks at its competitors, it couldn't hurt to see what else is out there.
After all, groceries aren't cheap. According to 2014 figures from the U.S. Department of Agriculture, if you're a family of four with older children (between ages 6 and 11), you're probably spending $1,064.60 a month.
Assuming you aren't a true supermarket snob -- and we're using the term good-naturedly -- you may want to add these notations to your shopping list the next time you're planning to stock your pantry.
Clear your mind of stereotypes. It isn't your imagination: You probably are drawn to certain grocery stores because of the stereotype they represent, says Sue Reninger, a managing partner at RMD Advertising, a Columbus, Ohio, firm that specializes in food marketing.
"Kroger shoppers are considered smart, savvy and traditional. Walmart shoppers are regarded as penny-wise and traditional blue-collar America," she says. "Whole Foods shoppers are traditionally thought of as DINKS -- dual-income, no kids -- and hyper health-conscious, well-educated Americans."
She adds that each retail brand provides not only food for their shoppers, but emotional nourishment, too.
Dave Cannon, a business and nonprofit consultant who founded Solution Bank, has seen firsthand the emotional component of buying groceries.
"I live in the Seattle area, where food is almost a religion. What you eat and where you buy have become not just an indicator of social status, but your moral values," Cannon says. "I think we tend to get a bit hysterical about it."
Atmosphere isn't everything. It may be that the basic, nothing-special store environment is keeping the prices lower.
Cherie Lowe, an Indianapolis resident who has a money-saving blog called QueenOfFree.net, says she began shopping at Aldi, a discount supermarket chain in 18 countries, when she was over $100,000 in debt. She went there "out of necessity" and wasn't overly thrilled about going.
"I viewed Aldi as a store which featured dented cans and nearly spoiled produce," she says. That, she adds, "couldn't have been further from the truth."
Her debt is paid off now, and she still shops there.
"I can buy fresh mozzarella and fresh herbs -- items I would never buy in a super center or high-end grocery store. The quality is phenomenal and honestly, there are products I will only purchase at Aldi now," says Lowe, who, in case you were wondering, isn't a spokeswoman for the store and has never even received a gift card from it. She is simply an "obsessed" fan.
Meanwhile, Carrie Schmeck, a content marketer in Redding, California, is a regular at WinCo Foods, a supermarket that services eight states on the West Coast. She readily admits that she isn't a fan of the store's environment.
"We hate shopping at WinCo," Schmeck says, speaking for herself and her friends. "Because it's so cheap, it's always busy. You shop with all walks of life."
But Schmeck says she can't stay away because the prices are so good. "Who wants to pay $1.59 for a can of tomato paste you can buy for 63 cents?" she says.
Don't ignore the dollar stores. You don't have to be a supermarket snob to think that a dollar store is where you might buy a pair of cheap sunglasses, but the last place you would purchase food. But there are delicious, nutritious gems to be found in dollar stores, according to Teri Gault, CEO of TheGroceryGame.com, a website for hard-core consumers who like finding the best grocery deals (hard-core because after a two-week free trial, followers choose to pay a monthly $10 membership fee for access).
Gault says she has found some very good produce at Dollar Tree. For instance, she recently bought a container of strawberries and blueberries mixed together and branded TJ Farms for $1.
Not all produce at dollar stores will be fresh, cautions Gault, who recently came across broccoli at a store that "looked like bugs had eaten [it]," and was brown. She recommends checking to see where the food came from. If it was grown in the U.S., you're probably in good shape. If it's from the other side of the globe, maybe not.
Embrace ethnic stores. Dawn Casey-Rowe, a social studies high school teacher in Providence, Rhode Island, says she likes going to ethnic grocery stores and often finds them far less expensive than all-purpose supermarkets.
"I'll go to the Spanish, Indian, Middle Eastern, Chinese, Japanese and Korean stores to get the things they showcase in their foods -- spices, ingredients, staples," she says, explaining: "If you learn your ingredients, you can get a great value on things that would otherwise be labeled specialty items in the big grocery store."
Cannon agrees that these markets can be a great place to go for food, although he finds that many of them "stock the slightly lower grades of produce, compared to the flawless stuff you find at the supermarket."
That doesn't mean he wouldn't buy it, however. "You may find a blemish here or there ... but the savings are huge," Cannon says. "With over a third of produce going to waste, I like to support outlets that find a market for perfectly good produce that would otherwise be thrown away."
Drugstores. You probably wouldn't save money if you bought all your groceries at a drugstore chain, but Gault says "drugstores nationwide carry a local milk that is usually 20- to 40-cents-a-gallon less than supermarkets."
She adds that most drugstores, like most supermarkets, have pledged not to use rBST, a hormone injected into cows to increase milk production.
Gault says drugstores also often have great sales on name-brand crackers, cereal, oatmeal and other more random foods such as olives, mandarin oranges, tuna and sardines. You'll want to check the circulars, of course, for the best deals.
Saving on groceries involves a lot of price checking and comparison shopping, and you could argue that it's better to be a supermarket snob and overspend than become obsessive about your grocery costs. Gault agrees that there's no sense in driving halfway across the city because you know a certain store sells coffee for a cheaper price than your neighborhood grocery.
But she says, "I make it part of my route. If I'm on my way somewhere anyway, and I know a store I'm passing by has a deal on coffee beans, I'll stop off."
And since that's part of her routine, without much effort, Gault often pays less for her coffee as well as other drinks and food. Of course, if you're a true supermarket snob, you probably really don't care.
Alan Diaz/APShoppers at Bayside Marketplace in downtown Miami.By Lucia Mutikani
WASHINGTON -- U.S. retail sales were flat in April as households cut back on purchases of automobiles and other big-ticket items, indicating the economy was struggling to rebound strongly after barely growing in the first quarter.
The weak retail sales report from the Commerce Department, and other data released Wednesday showing the 10th straight month of declining import prices in April, suggest little urgency for the Federal Reserve to start raising interest rates.
"In terms of the Fed, the sluggish spending and economic growth performance will continue to argue for a later start to liftoff, essentially ruling out a mid-year hike," said Millan Mulraine, deputy chief economist at TD Securities in New York.
While March's retail sales were revised higher to show a 1.1 percent increase instead of the previously reported 0.9 percent rise, that wasn't enough to offset the general weak tone of the report. Economists had forecast sales up 0.2 percent in April.
Futures markets continued to show that traders don't expect an interest rate hike until December at the earliest. The dollar fell against the euro and the yen, while prices for U.S. Treasury debt rose. U.S. stocks were trading higher.
Retail sales excluding automobiles, gasoline, building materials and food services were also unchanged after an upwardly revised 0.5 percent increase in March.
These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. Economists had forecast core retail sales rising 0.5 percent in April after a previously reported 0.4 percent increase in March.
Savings From Cheaper Gas
Retail sales have trended weaker despite households getting a massive windfall from lower gasoline prices. Consumers appear to have saved much of the money from the cheaper gasoline.
"The continuing weakness of retail sales in April brings into question our working assumption that the soft patch through the winter months was largely due to the unseasonably cold temperatures," said Paul Ashworth, chief economist at Capital Economics in Toronto.
Retailer Macy's (M) said net income fell to $193 million in the first quarter ended May 2 from $224 million, blaming the decline on cold weather and a strong dollar, which put a squeeze on spending by tourists.
The retail sales data added to employment and manufacturing reports in suggesting that while the economy was regaining its footing at the start of the second quarter, it lacked enough vigor to convince the Fed to tighten monetary policy before the end of the year.
The economy was walloped earlier in the year by a mix of bad weather, disruptions at ports, the strong dollar and deep spending cuts by energy firms. The government reported last month that GDP expanded at a 0.2 percent annual pace in the first three months of the year.
Economic Sluggishness
Trade and wholesale inventory data published last week, however, suggested the economy actually contracted. That was corroborated by a third report from the Commerce Department on Wednesday, showing business inventories barely rose in March.
The government will release its GDP revision later this month.
The case for the central bank to delay raising interest rates was strengthened by a separate report from the Labor Department showing import prices fell 0.3 percent in April after slipping 0.2 percent in March.
The dollar, which has gained about 11 percent against the currencies of the United States' main trading partners since June, and lower crude oil prices are keeping a lid on price pressures. That has left inflation running well below the Fed's 2 percent target.
Last month, retail sales were curbed by declines in receipts at auto dealerships, service stations, furniture and electronic and appliance stores.
There were some pockets of strength, with sales of clothing, sporting goods and building materials and garden equipment rising. Receipts at online stores rose as did those at restaurants and bars.
Over the past decade, employers have increased efforts to enroll workers in retirement savings plans. And they've paid off.
Participation rates are at all-time highs with nearly 8 in 10 employees taking advantage of defined contribution plans like 401(k)s when they have access to them, according to estimates by Aon Hewitt.
Persuading workers to max out their savings in those plans, though, has been tougher.
By 2013, the "vast majority [of employers] offered some type of employer-matching contribution" to encourage workers to save more, according to a recent Aon Hewitt analysis of nearly 150 plans with 3.5 million eligible employees. But even when employers offer matches, employees don't always take advantage of them.
A new report released Tuesday by the independent investment advisory firm Financial Engines found that 1 in 4 employees is missing out on receiving the full company match by not saving enough-leaving an average of $1,336 on the table each year. Or an estimated $24 billion altogether.
The match is one of the best deals employer plans offer.
"The match is one of the best deals employer plans offer," said Greg Stein, director of financial technology at Financial Engines, which examined the savings records of 4.4 million retirement plan participants at 553 companies. "It's an instant return on the retirement plan and demonstrates why it's so important to communicate the benefit of participating fully, and how much money is at stake."
As retirement plan researchers can tell you, unclaimed employer match money isn't a new phenomenon. But what's interesting is that one of the very mechanisms for encouraging participation in retirement savings plans may have inadvertently exacerbated the problem.
By the end of 2013, about 65 percent of companies reported having auto-enrollment programs, in which employees are automatically defaulted into a plan with an option to opt out, a feature that became increasingly widespread after passage of the Pension Protection Act in 2006, which provided safeguards for employers that adopted it. (Before the law passed, an estimated 20 percent of employers had retirement plans with auto enrollment; the number has more than tripled since.)
But the default contribution rate for most of those plans remains at 3 percent, the amount many companies adopted when they first added the feature-well below the 10 to 15 percent of annual income that advisers often recommend savers set aside for retirement.
"That's what was written into the code as the example, and suddenly everyone else was doing it. It was the herd mentality," said Rob Austin, director of retirement research at Aon Hewitt. Its latest report found more than 6 in 10 companies had a default contribution rate of 3 percent or less in 2013.
Meanwhile, most employers with matches offer 50 to 100 percent of as much as 6 percent of an employee's salary. "The problem that we have is often people are defaulted into rates that don't take full advantage of the match," said Robyn Credico, senior consultant at Towers Watson, a global professional services firm. "And we know most people don't do much once they default. So automatically they're missing out."
Combating Intertia
In the last few years, employers have begun taking steps to combat the inertia effect.
Fifty-seven percent of plans that automatically enroll participants also default employees into automatic escalation programs that increase employee contributions annually. That's up from 45 percent of plans in 2011, according to Aon Hewitt.
The plans typically increase contributions by 1 percentage point a year until they reach a cap-and Austin said the cut-off level has been climbing in recent years in an effort to boost employee savings rates. About one-third of companies that offer auto-escalation programs now increase contributions up to 10 percent of employees' salaries, and some have caps that are even higher.
"The theory is that if you turn people off when they hit 6 percent, it sends the message that that's enough to save, and it probably isn't for most people," said Austin, adding that some auto-increase programs now continue until employees hit the maximum they can contribute per year. That's $18,000 this year for a 401(k).
Some companies have also begun raising the default contribution rates in their auto-enrollment programs-sometimes to 10 or even 15 percent, said Austin, "though that's more the exception than the norm."
There's one simple reason for that. "Cost is a big barrier for companies," he said.
Recruitment Tool
Companies use matching plans to attract new hires in a competitive marketplace, but they're keenly aware that employees often stick with the default option. If their contributions are automatically increased each year, the amount employers will be paying out in matches will surely grow as well.
More common, said Austin, are efforts to encourage employees to save more through education and increasingly personalized outreach. Some employers offer small group and one-on-one meetings to outline the benefits of participation. Others go further, even texting nonparticipants with a link to a streamlined sign-up page.
"Instead of sending the same postcards to everyone," said Austin, "they say, let's hone in on nonparticipants or those who aren't meeting the match to let them know they're leaving money on the table."
And it can be substantial. The Financial Engines researchers found employees gave up anywhere from a few hundred dollars to more than $20,000 in employer match money a year. If you factor in the additional money that could be earned each year had it been invested instead, the loss is even greater.
"It's a lot of money," said Stein. "It's enough to make a significant difference to people's quality of life in retirement."
TOKYO -- Toyota Motor (TM) and Nissan Motor are expanding their recalls over problem air bags made by Japanese supplier Takata by another 6.5 million vehicles.
Toyota said Wednesday it was recalling nearly 5 million more vehicles globally for the air bag inflator problem. Some 637,000 of the vehicles are in the United States. In Japan, it is recalling nearly 1.4 million vehicles.
The recall affects 35 models globally, including the Corolla subcompact, RAV4 sport utility vehicle and Tundra pickup, produced from March 2003 through November 2007.
In the latest recall, front passenger and front driver-side air bag inflators can deploy abnormally, or rupture, and put a person in a crash at greater risk.
This is different from an earlier problem with Takata air bag inflators that deployed with too much force, which has affected a range of automakers including Honda Motor (HMC), Chrysler (FCAU), BMW and Ford Motor (F). At least six people have died worldwide due to that defect.
Ballooning Recall Numbers
When combined with the earlier recalls, Toyota's Takata-related recalls have ballooned to 8.1 million vehicles.
Tokyo-based Honda, which has recalled the most vehicles because of Takata air bag problems, said it was studying the new problem and hasn't made a decision yet about expanding its recalls.
Nissan recalled an additional 1.56 million vehicles globally for the new Takata problem, with 326,000 of them in North America, 563,000 in Europe and 288,000 in Japan.
Nissan's Takata-related recalls have now grown to about 4 million around the world.
The latest affects the Sentra compact, Caravan van and X-Trail sport utility vehicle, made from 2004 through 2007, Nissan said. The automaker said it will test the inflators and replace them as needed.
Toyota said it will replace the problem inflators on the driver side with inflators made by Daicel Corp., another Japanese supplier.
Toyota will continue to use Takata "since we have not at this point identified parts from a different supplier that are compatible," the company said in a statement.
Demand Outstripping Supply
Takata hasn't been able to keep up with demand for replacement inflators.
NHTSA, the government authority in the U.S., which oversees recall, as well as Takata and the auto industry, have been trying to pinpoint what's causing the inflator problems.
"Toyota's focus remains on the safety and security of our customers," said Dino Triantafyllos, chief quality officer at Toyota Motor North America.
Takata has been fined $14,000 a day by NHTSA since Feb. 20 for allegedly dumping documents on the agency without the legally required explanation of what's in them. The fines have reached about $1 million.
Takata has denied it is not cooperating fully with the investigation.
Even before the latest recalls, 10 automakers recalled more than 17 million cars and trucks in the U.S. and 22 million worldwide because of the Takata air bag problem. There could be as many as 30 million vehicles with Takata air bags in the U.S. alone.
The Takata air bag problems began surfacing about a decade ago. Takata uses a different kind of inflator propellant from rivals, ammonium nitrate, which can burn too fast if subjected to prolonged exposure to airborne moisture.
FlickrFormer American Apparel CEO Dov Charney.
NEW YORK -- Former CEO Dov Charney has filed a defamation lawsuit against American Apparel (APP).
The retailer said in a regulatory filing Wednesday that the claims are without merit and that it will "vigorously dispute" the charges.
The Los Angeles-based chain known for American-made clothing and raunchy ads said that if there's an unfavorable outcome from the lawsuit, it may face financial liability and have its reputation harmed.
Charney, who was fired from the retailer in December, has been the subject of lawsuits that allege he had inappropriate sexual conduct with female employees. He has said he had consensual sexual relationships with workers.
Last week Charney filed a $30 million defamation lawsuit against investment firm Standard General, one of American Apparel's biggest shareholders.
Chris Carlson/APA water retention pond in Anaheim, Calif., filled to less then 20 percent of its capacity.
California's drought is definitely taking its toll on the country's most populous state. Gov. Jerry Brown has signed a $1 billion relief package and the U.S. Department of Agriculture has designated 55 counties as primary natural disaster areas. Water usage is being curtailed in the state and millions of residents are starting to feel the impact.
But this isn't an isolated problem for the people of California. The impact of the drought could reach its way into nearly everyone's checkbook in the next few years, and might be felt in ways you never saw coming.
California Provides More Food Than You Might Think
Many Americans might not know that, by value, California is the largest supplier of agricultural products in the U.S.
In 2013, the state supplied 10.4 percent of final agricultural output, with $48.8 billion in value created. Of California's total land area, 25.6 percent is farmland, which is lower than the national average of 40.5 percent, but it's how that land is used that creates a concern for consumers.
Amazingly, California wouldn't have much of an agriculture industry without additional water. Of the state's cropland, 76.9 percent is irrigated, compared to just 13.4 percent nationwide, and 80 percent of the groundwater and surface supply of water consumed in the state is used to grow crops. But California values its irrigated crops because many of them aren't produced in large volumes elsewhere.
One hundred percent of almonds, 91 percent of grapes, 90 percent of broccoli and cauliflower and 88 percent of strawberries produced in the U.S. come from California. The big surprise is that 18.6 percent of all dairy products also come from the state, more than from dairy heavyweight Wisconsin, which comes in second at 14.1 percent of America's output.
A drought will mean fewer people in Southern California can water their lawns, but if it continues it will also mean less irrigation to produce the products you buy at the grocery store. So, why haven't you been hit with higher food prices yet?
The Cost to Consumers Will Be Muted ... for Now
Food prices as a whole haven't jumped significantly due to the drought, but we're starting to see drought impacts for some fruits and vegetables produced primarily in California. Garlic prices are up about 100 percent from early 2014 and grapefruit prices are up about 50 percent.
From here, conditions could get worse because California farmers have been forced to leave millions of acres unplanted, and some rural regions are running out of water to irrigate fields.
But there might be a long delay between when the drought affects planting and irrigating and when it will affect your wallet. The actual product being planted now won't hit store shelves for at least a few months, and most of those items are perishable, meaning even an efficient market won't see higher prices until there's a shortage of product. So the drought won't impact grocery prices until late summer or fall for most California-produced items.
Short-term impacts may occur on only a handful of products, but the long-term impact could be severe given the state's significant agriculture production. Droughts have long-lasting impacts on the soil and therefore on planting decisions, so we'll likely see lower agriculture outputs from California well into 2016, if not beyond. Brace your wallets.
Wong Maye-E/AP'Star Wars' creator George Lucas poses with characters from the movie franchise in Singapore last year.
Disney (DIS) has spent billions acquiring Marvel and "Star Wars" parent Lucasfilm, and it's just starting to monetize its purchased collection of superheroes and sci-fi stars. We've seen movies, consumer products, and theme park integration -- and the family entertainment giant is just getting started.
There's plenty of real estate left to conquer, and Disney's next big step could be television.
"We have said that with these channels and these brands -- ESPN, ABC, Disney, maybe even down the road something related to Star Wars and Marvel -- we do have an ability as a company to take product, specifically filmed entertainment, television, movies, directly to consumers," CEO Bob Iger said during last week's conference call when asked about Disney's chances to roll out its own streaming service.
Wait a minute. Disney is starting to talk up the potential of Star Wars or Marvel television channels being on the same level as its ESPN, ABC, and Disney Channel juggernauts? This could get interesting.
Green With Hulk Envy
Disney rolling out a Marvel Channel or Star Wars Network probably wouldn't come as a surprise, especially if we're talking about streaming television, where adding channels is far easier to do than with conventional pay-TV access, where spectrum limitations and carriage rights challenges exist. Disney could -- and should -- create different programming options if it does introduce its own version of Sling TV or PlayStation Vue consisting entirely of Disney-owned content.
It also only helps that Disney has been at the forefront of the digital revolution, unlike many of its media-mogul peers. Disney was the first major studio to make its video content available through Apple's (AAPL) iTunes, though it probably didn't hurt that Steve Jobs was Disney's largest shareholder after the purchase of Pixar. Disney also offered up its prized network -- ESPN -- to DISH Network's (DISH) Sling TV streaming service when it launched in February.
Disney was also an early mover in getting its content on Netflix (NFLX), and now that partnership has been expanded to original content starting with last month's "Daredevil." The Marvel series got off to such a hot start that Netflix ponied up for a second season just two weeks after the debut. There are three more original Marvel shows slated to run on Netflix in the near future.
Disney has the content that folks want, and it's not afraid to share it in unconventional ways.
X-Men Mark the Spot
Marvel's "Avengers: Age of Ultron" is the highest-grossing movie so far this year, and that should stand until "Star Wars: The Force Awakens" hits a multiplex not so far, far away come December. This is fertile turf, and five of the seven highest-grossing movies of all time in this country have been either superhero or Star Wars fare.
Disney has already been milking its deep Marvel catalog for the small screen. It's not just "Daredevil" on Netflix. The second season of Marvel's "Agents of S.H.I.E.L.D." recently concluded on Disney-owned ABC. Finding enough content to program an entire channel might not be easy, but the catalog of characters and potential is certainly there.
The challenge will be harder for Star Wars. Disney is just starting to carve out new franchises within the Star Wars universe. That may take time, but they said the same thing about Disney's Marvel acquisition, too. The content will come, and Disney now has the springboard -- streaming television -- to make it happen. Marvel Channel? Star Wars Network? Give it time, but it will happen, because when Disney dreams out loud about things, they usually materialize.
Motley Fool contributor Rick Munarriz owns shares of Netflix and Walt Disney. The Motley Fool recommends and owns shares of Apple, Netflix, and Walt Disney. Try any of our Foolish newsletter services free for 30 days. Looking for a winner for your portfolio? Check out The Motley Fool's one great stock to buy for 2015 and beyond.
NEW YORK -- Millennials are more likely than previous generations to turn to social media to make their financial decisions, relying on smartphones and tablets, and banks need to adjust their structures to accommodate -- and profit from -- that trend.
Many of the biggest names in marketing and finance are coming together to discuss how to attract and convert the coveted millennial demographic, most recently at the annual LinkedIn FinanceConnect conference in New York.
Frankly, if you solve for millennials, you solve for everybody.
"Our whole approach is: How do you show up in a useful way to an audience that's very demanding and very smart?" said Denise Karkos, chief marketing officer at TD Ameritrade (AMTD). "Frankly, if you solve for millennials, you solve for everybody."
About half of millennials prefer to do independent research before contacting a financial adviser, according to a LinkedIn (LNKD) and Ipsos study published last week. That compares to 42 percent of those surveyed in Generation X. And many banks and financial institutions are increasingly turning to social media to educate, advertise and establish trust.
"One in five millennials think that their social networks will be the hub of all their financial decisions," said Donna Sabino, senior vice president of Ipsos.
In the wake of the financial crisis and ensuing bailouts, millennials have developed a general distrust of Wall Street, yet a strong affinity for social media, according to Marty Willis, chief marketing officer at OppenheimerFunds. "Technology is a very trusted industry. It's more trusted than financial services," she said.
Millennials also are more likely to seek personal finance decisions on social media, according to the study. And while they seem to be pessimistic on the outlook for established finance companies, they are bullish on the economy, with 67 percent having faith in the "American Dream."
Growing Trend
Amid a growing trend towards making financial decisions and transactions on mobile devices, banks need to find ways to tailor their services to fend off a new contingent of digital competitors, according to Laura Desmond, CEO of Starcom MediaVest Group.
"Today's millennial expects to do everything off the mobile phone, from Uber to shifting money to making decisions about financial management," she said.
Banks are also eyeing the rise of mobile-payment apps, which allow customers to make transactions at an increasing number of outlets. "Whether it's Google, Samsung or Apple Pay, we have to be there." said Leslie Gillin, chief marketing officer of Citi's (C) consumer banking division.
A new form of competition has also emerged as online brokerages now offer a variety of services with little to none of the tradtional fees, collecting revenue mostly off of non-invested cash sitting in customer accounts. On Thursday, Robinhood, a Palo Alto, California-based online brokerage that doesn't charge commission fees, announced a $50 million round of financing for a $65 million total.
"Since many of the incumbents are publicly-traded and the commissions represent a substantial portion of their revenue, eliminating this revenue source could be detrimental" to their business," Robinhood's head of communications said in an email. "Of course, we would like to see commissions across the board come as close to zero as possible, but only time will tell."
Hardeep Walia, CEO of Motif Investing, emphasized the notion that technology will make life easier for customers, and traditional service fees will need to be brought down or eliminated.
"Friction is going to go to zero, transaction fees are going to zero," he said. "And the big guys are going to have to compete."
Alamy
DALLAS -- In a sign of the increasing importance of online video, AT&T said Wednesday it will offer Hulu's streaming TV service to its customers.
AT&T is the nation's No. 2 wireless provider. It also sells TV, Internet and home phone service and is in the process of buying DirecTV, which would make it the country's largest traditional TV provider.
Telecommunications and cable providers are trying to tap into high demand for streaming video. Verizon (VZ), the No. 1 wireless provider, said Tuesday it was buying AOL (AOL) for $4.4 billion in part because of its video offerings.
Starting later this year, an AT&T customer will be able to watch Hulu content through an AT&T app or website. There will still be a separate bill from Hulu, whose full catalog of TV and movies costs $8 a month through its own site and apps. The companies are also working on a Hulu TV app for AT&T customers.
AT&T's U-verse TV and Internet subscribers also have access to live and on-demand video outside of their homes through a U-verse app. They will be able to watch and search for that video and Hulu video through the AT&T app, which is still being built, said an AT&T spokesman.
AT&T Inc. (T) shares rose 34 cents to $34 in afternoon trading Tuesday. They are down 6 percent versus a year ago.
NEW YORK -- Wall Street's major indexes gave up early gains to end Wednesday's session little changed as some investors stood on the sidelines waiting for the next round of economic data at the tail end of earnings season.
U.S. retail sales were unchanged in April as households cut back on purchases of cars and other big-ticket items and import prices fell for a 10th straight month in April and business inventories barely rose in March.
The data suggested to some investors that the U.S. economy was struggling to rebound strongly enough for the Federal Reserve to raise interest rates before September.
People seem to be in watch mode as they get an understanding of what's next.
"You're now heading from an earnings-centric market to a macro-focused market," said Andrew Frankel, co-president of Stuart Frankel & Co. in New York. "People seem to be in watch mode as they get an understanding of what's next."
In particular, investors are waiting for inflation numbers and the next jobs report in coming weeks, said Michael Matousek, head trader at U.S. Global Investors in San Antonio.
However, Brian Fenske, head of sales trading at ITG in New York, said he was seeing solid volume of investors adjusting their portfolios after earnings season.
"I'm seeing more healthy activity which is buying, selling and shorting stocks," said Fenske. "I'm seeing a return of conviction."
The S&P's information technology index, was the best performer with a 0.5 percent increase.
The S&P utilities index was the worst performer, with a 1.1 percent drop. Duke Energy (DUK) weighed most on that sector and AES (AES) fell 2.5 percent drop after it priced a secondary share offering.
"It's a gauge of people's perspectives as to what the Fed will do next," said Frankel, adding that utilities are in favor if people think the Fed will stall on interest rate hikes.
The Dow Jones industrial average (^DJI) fell 7.574 points, or 0.04 percent, to 18,060.49, the Standard & Poor's 500 index (^GSPC) lost 0.64 points, or 0.03 percent, to 2,098.47 and the Nasdaq composite (^IXIC)
added 5.50 points, or 0.1 percent, to 4,981.69.
Movers and Shakers
DuPont (DD) shares fell 6.8 percent to $69.33 after it won a proxy fight against Nelson Peltz's Trian Fund Management. The stock was the biggest drag on the Dow Jones industrial average.
Macy's (M) fell 2.4 percent to $63.73, while Ralph Lauren (RL) fell 3 percent to $129.18 after they reported results.
Pall Corp. (PLL) rose 4.4 percent to $123.89 after Danaher said it would buy the company in a $13.8 billion deal. Danaher (DHR) was up 1.6 percent at $87.35.
Shares of pipeline company Williams Partners (WPZ) jumped 22.7 percent to $58.16 after Williams Cos. (WMB) said it would buy its affiliate for about $13.8 billion.
Advancing issues outnumbered declining ones on the NYSE by 1,695 to 1,369, for a 1.24-to-1 ratio; on the Nasdaq, 1,369 issues rose and 1,345 fell for a 1.02-to-1 ratio favoring advancers.
The S&P 500 posted 13 new 52-week highs and 4 new lows; the Nasdaq composite recorded 64 new highs and 34 new lows.
About 6.1 billion shares changed hands on U.S. exchanges, compared with the 6.6 billion average for the last five sessions, according to data from BATS Global Markets.
What to watch Thursday:
At 8:30 a.m. Eastern time, the Labor Department releases weekly jobless claims and the Producer Price Index for April.
Freddie Mac releases weekly mortgage rates at 10 a.m.
Earnings Season
These selected companies are scheduled to release quarterly financial results:
Over the past few years, target-date funds have been growing in popularity. According to Morningstar's 2014 Target-Date Series Research Paper, estimated net flows in target-date funds tripled from 2007 to 2013, growing from $200 billion to $600 billion.
A target-date fund is a mutual fund that automatically changes its mix of stocks, bonds and cash based on an end date appropriate for a particular investor. In most instances, the date is viewed as the day someone will retire, although they don't have to be For example, someone aiming to retire in 35 years could choose a target date 2050 fund. Because it has a long horizon, the portfolio would likely be weighted heavily toward stocks and would gradually allocate more in bonds as time passed. Before you invest, consider these question.
1. How Much Control Do I Want Over My Investments?
If you consider yourself more of a hands-off investor and don't mind buying something and holding it for a long time, then target-date funds could be a good fit. They have built-in diversification between stocks and bonds; they automatically rebalance; and they are offered by companies that have been around for decades and oversee trillions of dollars, so you don't have to worry that it's not being managed by professionals.
However, if the answer to this question is "a lot," "some" or even "a little," then target-date funds probably aren't right for you. The biggest issue most people have with these funds is that you are letting someone else decide how to much invest in stocks and bonds over the life of the fund. What happens if, three years down the road, you change your outlook on the economy and you'd rather hold more bonds than stocks?
The only way to do this would be to sell your holding and buy a different target-date fund, which defeats the purpose of buying one in the first place. There's nothing wrong with entrusting someone else to choose how much to invest in stocks vs. bonds, but if you want any say in the matter, then it doesn't make sense to buy a target-date fund.
2. What Is the "Glide Path" for the Fund?
All target-date funds move to a more conservative allocation as the end date approaches, which is known as the fund's glide path. What's different is how they get there and what they do once you reach the end date. Some funds are designed to be nearly all cash once they hit the target date, and those types of funds are called "to retirement." They focus more on keeping your investments stable, since one of their main goals is to minimize the potential for loss of principal as of the end-date.
The other kind of target-date funds, known as "through retirement," are built for investors who want their money to stay in the market after you reach the target date. Being retired doesn't mean you don't need to continue to grow your assets, right? The advantage with this type is that it lowers the chance that you'll outlive the amount of money you have, which is known as "longevity risk."
3. How Important Is Tax Efficiency?
Let's assume you're retired and all of your investments are taxable. Owning a target-date fund can be tax-efficient from the standpoint that it typically has low turnover and some of its distributions may be taxed at the long-term capital gains rate, which is lower than the ordinary income rate. However, you miss out on other opportunities to reduce your tax bill.
For example, tax-sensitive investors like owning municipal bonds because the interest generated is not subject to federal income tax. Another way to lower taxes is with tax-loss harvesting. This is where you sell your holdings that are trading at a loss to offset any realized gains you have incurred. You wouldn't be able to take advantage of these methods if all of your money was tied up in a target-date fund. Of course, you can put some of your money and manage the rest on your own.
Spencer D. Rand, a chartered financial analysis, is an asset management associate at Monument Wealth Management, a financial advisory firm that helps accomplished entrepreneurs transition to a life of long-term financial independence and wealth defined on their own terms. Based in Alexandria, Virginia, Monument offers clients unbiased advice, true wealth planning, advocacy and access throughout the wealth creation life cycle.
The U.S. Department of Education recently unveiled an improved methodology for calculating student-loan payment delinquencies. Where it once figured the late-payment rate of student loans as a whole to be 17 percent, the department has now determined that when the same data is expressed in terms of individual borrowers, it's as high as 38 percent.
However, the new calculations don't even take into account the borrowers in default or have had their payment plans modified by loan servicers so that their accounts no longer appear to be past due -- even though many technically are. Taking all that into consideration, the number of distressed borrowers approaches 50 percent.
There are two problems with the department's latest effort to convince a skeptical world that it really does know how to manage the more than $1 trillion of directly originated and government-guaranteed student loans on its books.
Get Some Real Numbers and Tackle Them Quickly
The first problem is, frighteningly, the department has demonstrated that it really doesn't know what it is doing -- not with all its restated metrics and loan-administration mishaps. The second is that even this latest parsing of payment-performance data has yet to inspire anything more than a frustratingly incremental approach to solving what is clearly a rapidly deteriorating situation.
Starting with the manner in which performance is evaluated, there are three categories of loans: those not in default, those that are and those that are someplace in between because the contracts have been temporarily restructured (granted forbearance) or permanently modified (via the government's Income-Based Repayment and Pay As You Earn plans).
True, the above three categories combine to make up the aggregate value of student loans currently in repayment, but each of these types must be separately tracked and analyzed, for two reasons: first, so that migrations between delinquency statuses (30-, 60-, 90-days past due, for example) can be monitored and corrective actions (with regard to servicing) taken; second, so that the activities of the loan servicers can be more closely scrutinized than they currently are.
What's Offered Does Not Go Far Enough
These private-sector companies are compensated for managing payment performances to within predetermined standards. So it's reasonable to be concerned about the temptation to improve upon the results, such as by temporarily accommodating delinquent borrowers so their loans no longer appear as past due.
These dreadful metrics should inspire lenders and servicers to find a comprehensive solution, but don't. The plain truth is that the plans to help student loan borrowers -- those currently in place (income-based repayment programs) and proposed (such as Sen. Elizabeth Warren's reintroduction of the Bank on Students Emergency Loan Refinancing Act) -- don't do enough.
Here's why: Pay As You Earn and Income-Based Repayment are helpful but cumbersome. Not only must borrowers re-qualify for the relief they need every year, but as their incomes grow, so will the value of their monthly payments. That makes it harder for households already under pressure to set budgets, let alone plan for the future.
What Can Be Done?
A loan portfolio in which roughly half the borrowers are either in trouble or treading water is one that is in obvious need of restructuring. So let's stop wasting time pointing fingers about how these loans were first approved or structured, or why borrowers are still struggling as the economy improves, and solve the problem. Here's how.
Restructure every loan-without regard for origination channel and payment status-for terms of up to 20 years. Longer repayment durations will do more for affordability than monkeying around with interest rates, although these, too, should be reconfigured because the consumer-unfriendly rate-setting mechanism that Congress put into place in 2013 has more to do with politics than it does finance.
Permit partial and full prepayments-without penalty. Just because a loan has a lengthy duration shouldn't mean that it can't be settled ahead of time. Penalty-free prepayments-where the additionally remitted amounts are appropriately applied against the principal-will help borrowers to limit the amount of interest they pay overall.
Expunge previous credit histories for loans that are subsequently refinanced. The standard 10-year repayment plan that was originally put into place is to a large extent responsible for the problems many borrowers have had. Creditors should therefore be more concerned about repayment performance after the contracts have been restructured.
Offer student-loan borrowers the same tax relief that has benefitted homeowners.Waive taxation on the value of the debt forgiveness that may be granted on an exception basis, just as it has been for distressed home mortgages that were permanently modified after the crash.
Permit student loan debts to be discharged in bankruptcy. This will motivate recalcitrant owners and servicers of government-guaranteed loans to come to the bargaining table with tangible, sustainable solutions.
The money exists to pay for all this.
The U.S. Department of Education rakes in enormous profits from its student loan programs. Much of that is a result of the risky manner in which the government has chosen to finance this activity (low-rate, short-term borrowing is used to support its high-rate, long-term lending at a time when the Federal Reserve is contemplating raising rates). But even if the department were to "match fund" its portfolio as lenders often do, it would still earn substantial profits from the combination of fees and interest that are charged.
What's not so well-known is how these profits end up appropriated by Congress to offset the national debt. Said differently, lawmakers are, in effect, taxing the very same constituents it should be helping.
This op/ed contribution to Credit.com doesn't necessarily represent the views of the company or its partners.
Although Americans are living longer, many people are still opting to retire at 65. Before you throw in the retirement towel, you may want to consider working into your golden years. Research shows there are both financial and personal benefits to be gained.
According to researchers at the Brookings Institution, it's simply not sustainable for most people to live longer lives, but retire early. Plus, with evidence that seniors who remain active past retirement lead happier, healthier lives, Brookings said it makes sense for many seniors to continue working past the traditional retirement age of 65.
Unlike past generations who worked in predominantly blue-collar jobs, there has been a shift to white-collar work, which is less physical, enabling seniors to work longer. "We not only live longer and healthier lives, but we also have the potential to work longer. The changing nature of the labor market also provides an opportunity for seniors to stay engaged," Wolfgang Fengler and Johannes Koettl wrote. "A binary system of working 100 percent until retirement and then suddenly moving to zero percent at an arbitrary age of around 65 is one of the great anachronisms of today's labor market in many OECD countries."
The Employee Benefit Research Institute's 2014 Retirement Confidence Survey found that 65 percent of preretirees plan to work in retirement, but only 27 percent actually do.
So What Will Happen?
A recent survey by the Transamerica Center for Retirement Studies found "a deep disconnect between baby boomer workers' expectations and employers' retirement realities." Less than half (48 percent) of employers have procedures in place to accommodate seniors' shifting from full-time to part-time work, and just 37 percent allow senior workers to take new positions that are less demanding.
Catherine Collinson, president of TCRS, said in a statement: "Employers have a tremendous opportunity to engage preretirees in succession planning, training and mentoring, which can be beneficial from an overall workforce management perspective for both the employer and employees involved. However, our research found that only 35 percent of employers are tapping into this opportunity."
Getty Images
You've probably heard personal finance experts talk about getting rid of your car and getting around by bike to save money.
This can be a good financial strategy. Switching to public transit, walking or cycling means no more car payments, gas or insurance bills, and maybe even the chance to stop paying for that gym membership.
But you might not want to ditch your car, and I hear you. Plus, I'm a big fan of making money rather than cutting back. That's why I want to make sure you know that you can make money with your bike.
Here are 10 ways to turn your bike into an income-generating asset. With more and more cities adding bike lanes, why not take advantage of these creative ways to add a few more dollars to your bank account?
1. Get paid to bike to work. Do you commute by bike? If so, your boss likely already knows, since you probably arrive at the office with your shoes and padded shorts before changing into normal clothes for the day.
However, specifically telling your boss or HR manager you bike to work could help you earn an extra $20 a month through the Bicycle Commuter Act.
Basically, your employer can reimburse you up to $20 a month for "reasonable expenses" related to biking to work. The idea is that you'd use this cash to help cover costs for a bike, helmet, lock, general maintenance and other expenses related to your commute.
An extra $240 a year is pretty great, and it's always nice to get paid for something you're doing anyway!
2. Lead bike tours of your city. Know your city inside and out? Use your bike to show tourists around. You can create your own business from scratch, or partner with companies like Shiroube to lead a tour. How much you'll earn varies by company, but bike tour guides can make around $75 to $150 a day.
Narrow your focus to a bikeable neighborhood or area with lots of cool and noteworthy landmarks. They don't all have to be famous tourist stops, either.
While a West Village bike tour in NYC might want to swing past 64 Perry Street (fictional home of Carrie Bradshaw), as Shiroube explains, "Your local school, small but cozy restaurants, your friends' grocery shops -- all these are what experienced travelers want to come and see." Plan your route with a mix of local landmarks and personal favorites to give your tour its own unique flavor.
Getting started is as simple as filling out an application which whichever local tour guide company you choose.
3. Work as a courier for Postmates. Postmates hires couriers to deliver food, drinks, and other items on demand for people who live and work in major cities. When a customer places an order through the Postmates app, the courier gets a notification, purchases the item, and delivers it to the customer.
To work for Postmates, you must be over 18 and have your own transportation. While you could choose to drive, riding your bike means you'll keep more of your hard-earned cash -- plus get a workout -- instead of spending it on gas.
As for that cash, how much can you make? Couriers keep 80 percent of the delivery fee plus 100 percent of their tips, according to reports on Glassdoor. While the company says some couriers earn up to $25 an hour, you'll likely earn less than that, especially when you're just getting started.
However, being able to choose your own hours is a nice benefit, as is getting paid to ride your bike. Postmates isn't available everywhere, but check out their website for a full list of places you could work for them.
4. Deliver food for a local restaurant. If you live in an urban area, you've probably had takeout pizza, sushi or Thai delivered by bike. Why? Getting around a city and finding parking can be a nightmare for a delivery driver -- and severely cost prohibitive for a company.
If you've got an entrepreneurial streak along with a good bike, this is a great opportunity to make some quick cash. A startup called Dashed picked up on this idea a few years ago and became a $4.6 million business serving the New England area.
Most restaurants hire their own delivery riders (unless they use a third-party app, like Postmates) so you'll have to pitch your services to businesses directly. If you work in the right neighborhoods on the right nights, you could make a fair amount of cash -- even if you only work for tips.
5. Buy and deliver groceries through Instacart. Another purchase-and-deliver option to try is Instacart -- an app similar to Postmates that focuses solely on grocery shopping. When a customer posts an order for groceries, you head to the store and buy them, then deliver them to the customer's home.
The nice thing about working for Instacart is that you can combine these trips with your own grocery shopping... as long as you've got a big set of panniers or a backpack to hold all the items, that is.
You'll need to be at least 18 years old, be able to lift at least 25 pounds, and have a recent smartphone. The company says shoppers earn up to $25 an hour, though reports from shoppers on Glassdoor are mixed. One shopper from San Francisco explains that "I mostly shop two orders simultaneously, so by the end of my shift I've averaged close to one order per hour, making $15/hr on the low end and $22/hr on the high end." However, a shopper in Chicago says $9.50 an hour is a more realistic estimate.
6. Teach bicycle safety or repair workshops. As more people ditch their cars and choose to bike, there's a bigger demand for classes and workshops on bicycle safety and maintenance. If you know your way around a bike and can teach people how to ride safely or how to maintain their rides, you could earn extra cash this way.
If you'd rather let someone else handle the logistics, ask outdoor stores, local cycling shops and bike-focused organizations whether they need support with their programs.
You could also try teaching your own small bike-repair or bike-safety classes. You might have to compete with some pretty big fish, but you might find that people are keen to support an independent neighborhood business.
7. Drive a pedicab. Ever visited a new city or left a sporting event and been surrounded by pedicabs offering to give you a ride across town? These big tricycles are a fun way for customers to avoid congestion and traffic while seeing a different side of a city.
If you want to give pedicabbing a shot, you'll need to check whether your city requires a license. You could build your own pedicab, but it might be easier to look for local pedicabbing companies who will provide a ride.
Don't make the mistake of thinking this will be an easy job. Seattle Pedicab advises that it's hard work, especially in the physical sense. "Riding a trike is different from "fitness exercise"... Even experienced cyclists are surprised by the differences between riding three wheels versus two," the company explains.
However, they say most riders get used to pedicabbing within two to four weeks, so you could be up and running by summertime.
How much you can earn depends on many factors, such as your city, the weather and what's going on in your area. During South by Southwest -- one of the biggest festivals in the country held in Austin, Texas, every March -- pedicabbies can earn up to $100 an hour.
8. Start a bicycle-powered composting business. Riding a bike is already environmentally friendly, but you can earn a few more eco-points -- and earn some cash -- by leading a bike-focused composting program.
What does this mean? Basically, you'd bike around to homes, schools and businesses picking up food waste. You'd bring that food waste back to your home or business site, where you'd turn it into compost.
That's where the money-making potential comes in: Once the food scraps have become compost, you can sell it by the bucket to local gardeners or community organizations who can't produce enough of this "black gold."
You don't need much to start this business: a bike, a trailer and a place to store your compost. For more information and a little inspiration, check out the bicycle-powered composting programs highlighted by Bikes at Work.
9. Rent your bike out through Spinlister. Going out of town for a few days? Decided to a buy a car? Bought a second bike? Whatever your reason, if you don't need your bike for a few days, why not rent it out to someone you trust -- and make money?
Enter Spinlister, the Airbnb of bicycles. Simply list your bike with details and photos, approve a renter, and when the renter confirms and pays, they can pick up your bike. At the end of the ride, you'll get paid.
Most bikes rent for around $20 to $30 an hour or $100 a day -- a nice chunk of change to earn from something that would otherwise just be sitting in your garage.
Worried about damage? If your bike is lost, stolen or damaged while it's rented out, Spinlister will compensate you up to $10,000.
10. Start a business next to a bike lane. OK, so this one's not so much a way to make money with your bike as it is a way to make money helping other cyclists.
As more cities are developing bike lanes and designated streets, research has shown the surprising economic impact of cyclists. While people who drive to bars, convenience stores and restaurants tend to spend more money on each visit, cyclists tend to go more often and spend more money overall, according to a recent study in Portland.
"For example, the data shows that people drove to a convenience store an average of 9.9 times per month and spent $7.98 per visit for a total monthly expenditure of $79.73 while people who biked made 14.5 convenience store visits, spending $7.30 per trip for a total of $105.66 per month," reports BikePortland.org.
What does this mean for you? If you're considering starting a business, bike-focused or not, make sure to consider the needs of cyclists. Offering free water-bottle refills, a large bike rack or rental bike locks could make your business more attractive to riders -- who are likely to keep coming back. If you're able to position your business on a bike lane, you could do even better.
Have you made money with your bike? I'd love to hear your ideas!
NEW YORK -- Lara Cohn's goal is to increase the amount she allocates into her 401(k) by 1 percent each year to ensure that reaches her retirement goals.
As a Gen X-er, Cohn, a 44-year-old New York public relations executive, has always heeded the advice of her family to save for the future. Following this sentiment means that she will have a solid nest egg by the time she retires, giving her the freedom to travel. Along with a portfolio of IRAs and an emergency fund, Cohn balances her retirement needs with her love of traveling.
"It makes me feel safe knowing I can take care of myself," she said. "After the recession hit in 2008, I definitely lost a chunk of my retirement savings like many of my other fellow Gen X-ers, so it's become very important for me now. I make it a priority to have paid off all my debt and save more than before."
Cohn's attitude toward saving for retirement mirrors that of her counterparts. More Gen X-ers, or those between the ages of 35 and 49, are saving more for their retirement than baby boomers, those between the ages of 50 and 68, according to a recent survey by their PNC Financial Services Group, the Pittsburgh-based financial institution. The survey found that 51 percent of Gen X-ers are increasing their savings while only 37 percent of boomers are following the same trend.
The Great Recession spurred added concern about being adequately prepared for retirement, and Gen X has been more versatile in adjusting its behavior.
"One of the most challenging tasks is changing habits, particularly in managing spending and debt and increasing savings and seeking advice," said Celandra Deane-Bess, senior wealth planner for PNC Wealth Management. "I think Gen X is clearly more concerned about retirement, but they are also changing their behavior adequately to ensure better outcomes in the future."
Gen X-ers are more worried about saving enough money for their future and are taking more responsibility with ramping up their savings with 65 percent who agreed that they are responsible for their retirement and aren't counting on relying upon an employer pension or Social Security. Only 45 percent of Boomers agreed with this belief.
For the past several years, Matt Caldwell, a 34-year old national account manager for Siemens who lives in Rancho Santa Margarita, California, has been investing steadfastly in his 401(k) and IRA. Saving for retirement has remained a priority, because not only does it provide financial independence, it means he and his wife, Alicia, will be able to pay for their daughter's college tuition. Part of the commitment means that both of them allocate a generous portion of our salaries to their retirement accounts.
"The sooner we are able to establish a nest egg, the larger it will grow over time and can provide a comfortable retirement and security for the uncertainties of life," he said. "It means I can afford to take my wife to Greece and retire in my 50s."
