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Sketch Guy: Squeezing the Most Out of 401(k)’s, for Now

July 15, 2013 by Leave a Comment

We hear a lot of discussion around the idea of reform. Reform the government. Reform the banks. Reform education. Reform health care. In fact, it’s hard to think of a system we’re 100 percent happy with.

So it’s no surprise to see many headlines and stories recently about the “failed” 401(k) experiment and how we need a different system to finance and manage retirement. It’s also easy to see why John C. Bogle, founder and retired chief executive of the Vanguard Group, described 401(k)’s as “a thrift plan that we’ve tried to redesign into a retirement plan.” The average amount in 401(k)’s doesn’t bode well for people looking to retire in their 60s and live 20-plus years. There are clearly some issues with the current system.

Let’s say we accept the premise that the system needs to change, that we as a society need to adopt a better way, a different way to help people finance their retirement. Let’s say further that we agree that maybe saving for retirement is better addressed as a collective, societal issue rather than an individual one. If we believe that, then we should pursue reform and advocate change to our elected officials.

But at the same time, we have to accept the reality we live in now. Even if we believe that the retirement system is broken, it is the only system we have, and we all know that it isn’t changing anytime soon.

It’s when we reach this point that I see a potential disconnect, maybe even a moral hazard. If we focus exclusively on the problem, in this instance the 401(k) system, it can be incredibly easy to abdicate personal responsibility. However, no matter how bad the system, we’re only hurting ourselves if we separate personal responsibility from reform.

We need to accept the fact that working for reform and taking personal responsibility are not mutually exclusive.

Even though we may wish it were different, the 401(k) is the option most of us have to plan for retirement. As part of the reform process, you owe it to yourself to get the most you can from the current system. Simply saying the system is broken doesn’t absolve you from making the best possible financial decisions you can.

We have a personal responsibility to understand the current system and make the best of it even as we’re trying to reform it. That means doing things like actually participating in your 401(k), making sure you take advantage of any match your employer might offer, selecting investments inside your plan that match your goals, maxing out contributions and not borrowing money from your 401(k).

Obviously, these five things won’t fix the broader problem we have as a society of being woefully unprepared for retirement. We have a system that needs fixing so it can serve a wider group of people, and we should all be advocating for those changes. But don’t let your frustration blind you to the things you can do right now in the system we have.

It reminds me a bit of this idea that we’re all waiting around for the day when scientists announce that they’ve found a pill that lets us eat anything, never exercise and live forever. What if they made the announcement tomorrow but said the pill wouldn’t be available for five years?

Would you stop eating healthy and exercising? Doubtful, because even though they may not be your favorite things to do, they’re still the only things you have at the moment to keep you healthy between now and five years from now.

That’s how it is with 401(k)’s. Hopefully something better will come along, but in the meantime, work with the tools you have to get you from here to there.

Article source: http://www.nytimes.com/2013/07/15/your-money/squeezing-the-most-out-of-401-k-s-for-now.html?partner=rss&emc=rss

Filed Under: Your Money Tagged With: , ,

You’re the Boss Blog: When Small Businesses Try to Attract Big Partners

February 14, 2013 by Leave a Comment
She Owns It

Portraits of women entrepreneurs.

Alexandra Mayzler, owner of Thinking Caps TutoringEarl Wilson/The New York Times Alexandra Mayzler, owner of Thinking Caps Tutoring

Small-business owners often maximize their resources and extend their reach by teaming up with larger organizations. But to partner with a larger organization, they first have to get through to one. Alexandra Mayzler, who owns Thinking Caps Tutoring, is trying to do just that. She talked about the challenges of getting a foot in the door at the last She Owns It business group meeting.

To date, Thinking Caps has tutored students individually. But Ms. Mayzler is now planning to offer her study skills program in a class format as well. She’d like to begin by holding classes at organizations like the YMCA or the JCC. She’s also thought about working with large companies to offer classes to employees who are interested in learning how to help their children study. But finding “a human” to connect with at these organizations, she said, has been difficult.

“I don’t know if I’m approaching it incorrectly, maybe I’m not aggressive enough,” she said. “I understand that it takes forever to get back on this kind of stuff because there are layers of people but it’s just …”

“How to get into the organizations,” said Deirdre Lord, who owns the Megawatt Hour.

“The only other option is for us to set up shop and say, ‘Okay, we’re renting a classroom, here’s the classroom’ — just advertise it,” Ms. Mayzler said. But that’s expensive.

“I would think at least one of your clients would have some relationships at the JCC or Y,” Ms. Lord said. An introduction from the right person can make things so much easier, she added.

Jessica Johnson, who owns Johnson Security Bureau, said Ms. Mayzler needs “a superhero advocate that can go in and sit in the boardroom and say, ‘Look, we need to bring Thinking Caps on as a partner.’”

Ms. Mayzler considered this. “So identify those places and basically look for individuals on the board?” she asked.

“Look on the boards, go above the people that are in the actual locations,” Ms. Johnson said. “A board member can give you much more leverage and actually take you to the people that make the decisions.”

“That’s a good idea,” said Beth Shaw, who owns YogaFit.

“Let them advocate for you,” added Ms. Johnson. Ms. Lord agreed.

Ms. Mayzler wondered if she needed a dedicated person on staff to pursue these partnerships.

“You don’t even need that,” Ms. Johnson said. Instead, she suggested Ms. Mayzler make a plan and break it into manageable pieces. “Then it won’t seem so overwhelming,” she added. For example, if the Y is her target, she could give herself six months to win it.

“It takes a long time to win these big organizations, though, believe me,” Ms. Shaw said.

“Let me tell you, I grew my business 700 percent in the last three years — not on my own,” Ms. Johnson said. Rather, she said, “I had people advocating for me, like people that I don’t even know. They look at me, and they’re like, ‘I want to make you successful.’”

“Right,” Ms. Lord said.

“There’s a way that you can make this happen — sometimes all it takes is one person,” Ms. Johnson said. She recommended that Ms. Mayzler set aside five minutes every three days. One day, she might send a handwritten letter. Three days later, she could follow up with an e-mail. And three days after that, perhaps a phone call.

“I can’t imagine, based on who your clientele is, that someone isn’t friends with somebody on the board,” said Susan Parker, who owns Bari Jay.

“Yes, exactly!” said Ms. Lord. “You probably have champion parents, parents who are like, ‘Oh my gosh, what would we do without Thinking Caps?’” Ms. Lord suggested Ms. Mayzler call these parents, share Thinking Caps’ goals, and see if anyone is willing to make introductions.

Ms. Mayzler said that maybe the process would be easier if she just focused on one organization at a time.

“Or not one, but five,” Ms. Lord said.

“Somewhere between one and three — something that’s manageable,” Ms. Johnson said.

“Do more than one, though,” Ms. Parker said.

“Yes, definitely more than one,” Ms. Lord agreed.

“Because, if you put all your eggs in one basket, and it doesn’t happen, then you’re back to where you started,” said Ms. Parker.

“I just met with a guy who’s the director of all of the JCCs in North America,” Ms. Shaw said. She offered to introduce Ms. Mayzler to him.

“The JCCs, from what I understand, run very individual programs,” Ms. Parker said.

Still, Ms. Shaw said, the organization does have preferred vendors. At the very least, her contact might be able to point Ms. Mayzer in the right direction.

You can follow Adriana Gardella on Twitter.

Article source: http://boss.blogs.nytimes.com/2013/02/14/when-small-businesses-try-to-attract-big-partners/?partner=rss&emc=rss

Filed Under: Small Business Tagged With: , ,

A Question of Fairness

November 24, 2011 by Leave a Comment

Fair Trade USA, the movement’s leading advocate in the United States, angered critics by saying it would cut its ties at year’s end with the main international fair trade group and make far-reaching changes in the sorts of products that get its seal of approval.

The changes include giving the fair trade designation to coffee from large plantations, which were previously barred in favor of small farms. The group is also proposing to place its seal on products with as little as 10 percent fair trade ingredients, compared with a minimum of 20 percent required in other countries.

The group says the changes will benefit more poor farmers and farm workers around the world and make it easier for large corporations to sell fair trade products. Sales of fair trade goods in 2010 were $1.3 billion in the United States and $5.8 billion globally. Fair Trade USA said it hoped to double sales in the United States by 2015.

Critics accuse Fair Trade USA of watering down standards, perhaps motivated by the bigger fees to be earned from certifying a higher volume of products. Some sellers of fair trade products fear that small coffee farmers will lose market share to the big plantations and that companies will have an incentive to include only the minimum amount of fair trade ingredients in their products.

“It’s a betrayal,” said Rink Dickinson, president of Equal Exchange, a pioneer importer of fair trade coffee, chocolate, tea and bananas, based in Massachusetts. “They’ve lost their integrity.”

Paul Rice, chief executive of Fair Trade USA, said the fair trade movement was dominated by hard-liners who resisted needed changes. “We’re all debating what do we want fair trade to be as it grows up,” Mr. Rice said. “Do we want it to be small and pure or do we want it to be fair trade for all?”

He dismissed criticism that his group was seeking to increase revenue for its own sake. “The more we grow volume, the more we can increase the impact” of fair trade, he said. In 2010, companies that sell fair trade products paid the group $6.7 million in licensing fees, which are meant to pay the cost of auditing a company’s production to make sure its fair trade claims are accurate.

As part of his efforts to expand the fair trade designation, Mr. Rice is cutting ties between his group and an umbrella organization, Fairtrade International, which coordinates fair trade marketing activities in close to two dozen countries. He said his group paid outsize fees to Fairtrade International — about $1.5 million last year — and received little in return. The international group has also rejected the changes put forth by Mr. Rice.

“The best thing we can do is make sure we’re staying true to the principles that got us to where we are,” said Rob S. Cameron, the chief executive of Fairtrade International. “I’m not going to water those principles down.”

The brouhaha has surprised many companies that sell fair trade products and will soon be forced to take sides. For consumers who pay attention to where their food comes from and how it is produced, the result could be confusion as they try to sort through a proliferation of competing fair trade labels with differing claims.

The logo overload will include a redesigned Fair Trade USA seal; a Fairtrade International seal, which previously did not appear in this country; and labels from smaller programs, like one run by Catholic Relief Services.

Coffee, which Mr. Rice said accounted for more than 70 percent of the fair trade market in the United States, is at the center of the dispute.

Article source: http://feeds.nytimes.com/click.phdo?i=07de9fc1021e03c54fbfe168c567bb8d

Filed Under: Business News Tagged With: , ,

Economix Blog: Casey B. Mulligan: Local and National Stimulus

August 25, 2011 by Leave a Comment

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Casey B. Mulligan is an economics professor at the University of Chicago.

It’s a lot easier to move spending from one area to another than it is to create spending anew. That’s why it may be too much to ask the federal government to use its ability to spend to get the recovery going.

Today’s Economist

Perspectives from expert contributors.

In 2009 the New York Yankees opened their new stadium on the north side of East 161st Street, replacing the historic stadium on the south side of the street. Not surprisingly, 2009 spending by consumers, news organizations and entertainment businesses, among others, on the north side of East 161st Street was a lot more than it had been in years past. It all started from the Yankees’ spending at the new location.

So a spending advocate might assert that this episode is proof that spending by one organization can stimulate spending by others, because the spending by the others on the north side of the street surged at exactly the same time that the Yankees started having their people work there.

Of course, such an analysis is flawed, because it ignores what happened on the other side of the street. Much of what happened north of East 161st Street was just a displacement of activity from the south side, rather than a creation of new activity. Even the construction workers building the stadium may well have been drawn from other tasks.

This pattern is not special to the Yankees’ move. A number of studies have shown that consumer spending associated with a sports team to a large degree displaces spending in other areas and displaces spending on other leisure activities; a family is unlikely to conclude that because there’s a new team in town or a new stadium, it should sharply increase its spending on entertainment.

Yet ignoring the displacement effects is exactly what Paul Krugman and Dean Baker have done in their praise of recent studies that use “cross-state variation in stimulus spending per capita to estimate the employment effects of the stimulus,” studies comparing states that received more stimulus to states that received less.

Spending from the American Recovery and Reinvestment Act (a.k.a., the “stimulus”) could be very much like the stadium spending — a locality that received more stimulus spending merely enjoyed a displacement of activity into its area from localities that received less spending, and that nationally little or no additional spending occurred as a result of the legislation.

If you want to know about the national effects of the stimulus, at least part of the analysis has to look at the nation as a whole. The same is true of the national effects of changes in labor supply. If one group suddenly becomes more willing to work, it is possible that the group solely takes jobs from the rest of the population, with no new jobs being created for the nation as a whole.

That is why, in addition to looking at the experiences of specific groups and specific regions, I have examined the effects of supply and demand on national employment. (Professor Krugman and Dr. Baker assert in so many words that I ignore national employment, though my papers on the subject look very much at national aggregates. For example, see Figure 3 and Figure 6 of this paper and Table 2, Table 3, Figure 2, Figure 3, Figure 4 or Figure 5 of this paper).

I found, for example, that national employment increases during the summer precisely because young people are more willing to work. Not surprisingly, the summer surge of young job seekers does seem to reduce employment of the rest of the population, but the net national effect is still almost a million more jobs in the summer.

For now, it appears that government spending reduces private spending, even while it may benefit specific regions or groups.

Article source: http://feeds.nytimes.com/click.phdo?i=3de0f98783f264b64f43021f2aa6a23b

Filed Under: Economy News Tagged With: , ,