Ending the year...

Happy holidays! I hope everyone has a chance to relax with family and enjoy the holiday season. I know from my end, I've been enjoying it!

I'll probably only make a few more posts this year as I continue being in vacation mode for the rest of the holiday season. I expect to post my financial goals for 2007 and of course, an update on 2006 that includes both a December update and a summary of the full year accomplishments. Ending a year is always an exciting time, so I'm really looking forward to these summary posts.

Again, happy holidays and I hope everyone is well.

Overweight? Getting to retirement is going to be hard!

I came across a Dec 2nd copy of the New York Times at the gym this morning and was curious how I missed this story. In the business section is an article called "Extra Weight, Higher Costs" that talks through a study attempting to correlate weight and net worth. It's an interesting premise. Before creating this post, I searched around and it appears a few other bloggers have already written about it, but that won't keep me from chiming in on it.

The article can be boiled down to a few core points:

1. People with normal BMIs (Body Mass Index) earn more money than who are considered overweight or obese
   
2. People with normal BMIs accumulate more in net worth
   
3. People with normal BMIs inherit more than their overweight counterparts.
4. Further, people with normal BMIs spend less on health care.

Wow. So not only do overweight people earn less, accumulate less and inherit less, but they also pay substantially more in health care costs. I know this is all logical and such, but when you boil it down that way, and couple it with the fact that overweight people generally live shorter lives, how can anyone honestly look themselves in the mirror and not want to take immediate action to improve their overall weight and health.

My favorite quote in article:

"...a unique twist on the calculations to determine what “supersizing” a fast-food meal costs society. Paying 67 cents to supersize an order — 73 percent more calories for 17 percent more money — adds an average of 36 grams of adipose tissue. The future medical costs for that bargain would be $6.64 for an obese man and $3.46 for an obese woman. “The hidden financial costs associated with weight gain from upsizing a value meal may help convince people it is not a bargain..."

Being overweight is hard and the battle to lose weight is hard. Keep up the battle, if not to save extra money, at least keep up the battle to save your longer-term health. Oh, and if you haven't seen this movie yet, go see it.

Who carries a mortgage into retirement?

Jeremy of GenXFinance and I are having an interesting discussion over on AllFinancialMatters about people who carry mortgages into retirement. My contention was that most people do not and should not. He pointed to a BusinessWeek article that has some interesting data in it, but I'm convinced that they are spinning the data to make it more dramatic so they can create a story around it. Bottom line: less than 25% of people in their 70s have a mortgage and about 44% of those in their 60s have mortgages. It's not clear which of these people are retired and it's not clear whether or not these mortgages are for retirement homes or primary homes. In short, there are enough missing pieces to the puzzle to draw any solid conclusions.

BTW, there was also some discussion around paying down my own mortgage in preparation for early retirement between me and Larry Nusbaum. You can see that discussion in the comments here.

Now here's a scary thought...

Imagine that you've saved a nice chunk of money in your 401(k) for retirement, but as you approach retirement, the sum total of all of your investments still seems like it may fall short. What do you do? Well, I was shocked when I read it, but I can see it happening and I can see it being a popular option:

"The next frontier for retirement saving may be annuitization, which would allow retirees to turn over funds accumulated in their 401(k) plan in exchange for a regular monthly or annual payment for the rest of their life."

The premise sounds good, but anyone familiar with annuities knows that they have serious drawbacks. You're basically paying someone else to guarantee you enough money for the rest of your life, and that costs money. The scary part about the quote above is that someone figured out that if you offer an option to make your 401(k) look like an annuity without using the "annuity" word, you'll make a killing on those who haven't saved enough. I'm sure the annuity industry is thinking of it as "picking the low hanging fruit" out of the 401(k) population. Brilliant, but also sad.

(Photo courtesy of brendanadkins)

More on Prosper.com

As I said in my November update, I've funded another $2,000 into my Prosper.com account and have been looking to fund a few more loans. As I'm looking through the loan requests, I found myself asking few more questions and putting a few more stakes in the ground:

1. Group endorsements: What accountability do groups have when they provide endorsements? As I said earlier, I am somewhat skeptical about a group's involvement because they ultimately wind up getting paid if a loan is funded. Anyone can make statements about how worthy someone is for a loan, but when the loan goes into default, I'm sure they're nowhere to be found. Does anyone know what their accountability is?
   
2. Credit Ratings vs. Debt to income ratios: I'm always a little curious when I see an A or AA credit rating with a HORRIBLE debt to income ratio. For instance, I saw a borrower who has an A credit rating with a 74% debt to income ratio. While this is a likely scenario for someone in college (low income, high debt), it seems odd for someone in their 40's or 50's, right? The skeptical side of me wonders if there is a loophole in Prosper.com's loan applicant process. For instance, can I provide my 10 year old daughter's social security number so her untarnished A credit rating is displayed, while I provide my own W2 forms that show my income, etc. I haven't gone through this process, so I am speculating, and one thing that's not entirely clear is how they come up with the debt side of the equation. Does the debt side all come from the credit report? If so, credit rating and debt to income ratio are tied together, then. Either way, anytime I come across a borrower that is at different ends of the spectrum for DTI and Credit rating, the red flags go up and I move on to a borrower with more normalized rankings.
3. Bid amounts: Again, as I pointed out earlier, it takes a fair amount of time to sort through and manage bids and funded loans. Since most people on Prosper.com are trying to diversify away the risk as much as possible, you find them funding loans with $50 each. If you have $10,000 lent out, that's over 200 loans to keep track of! I wasn't that bad last round, but in this round of funding, I am going to fund fewer loans in higher amounts. My minimum funding amount per loan will probably be in the $250 range and will go up to around $500 per loan. Obviously, the trick here is to figure out how to distribute your money across higher interest rates (and risk) to maximize the return. It's a bit art and a bit science, so we'll see how it goes.

Anyone else out there trying to squeeze returns out of Prosper still? Let me know what you're up to...

November Net Worth Update (up 2.27% to $904,687)

Again, another good month with a lot of little things going on. Overall, my stock gains were up 3.71%, but I used some of these funds for other purposes so the gain showing at NetworthIQ is shown a bit lower (see below). Also, my retirement gain was 2.94%, both of which were great despite the huge one-day drop at the end of November. Following are the details:

1. Investment gains were great. I sold my position in HOG after a near 50% run in the stock, and according to my goal of having $501k in stocks/retirement and a remaining mortgage of $170k by the end of 2006, I used some of the cash proceeds to pay down the mortgage ($12k). Also, I paid down an extra $1790 with free income cash for the month (in lieu of investing it). Note, my stocks/retirement total is still hovering around $510k after this move, so I'm quite confident I will hit my goals for the year.
2. In December, I expect to pay down the mortgage more with free cash and hope to make the $170k balance by end of year. For me, hitting this goal is all part of the early retirement plan. At the rate I am paying it down, I should be mortgage free by 2011 (5 years), about the same time I hang up my big corporate hat.
3. I also moved another $2000 into Prosper.com in anticipation of additional positive returns. I have 6 loans returning an average of 14%, all of which are low risk and "Current". I may step up the risk a bit on this next round of funding, but I'm not going overboard. I'll take a reasonably assured 14% return any day.
4. I should point out that on the stock front, there are about $1500 worth of contributions (via employee stock program), so the gain is a little mis-represented.