Is it a good idea for a Baby Boomer to start an Internet Business in Retirement?

This is a question on the minds of many Baby Boomers who see it as a way to supplement their income in retirement. Rita from The Survive and Thrive Boomers Guide asked me if I could write a post about boomer’s setting up a small business without risking their nest egg. Be sure to visit her excellent site for all sorts of information for Baby Boomers. This post partly answers that question.

I have run a small computer consultancy business from an office with staff and from an office at home. I much prefer the freedom of working from home and the fact I have no staff to worry about. I was always chained to the business when I had an office.

Fast forward to now when I am in semi-retirement. Much of the computer consultancy work is sub-contracted out now. So I was wondering what I should do with my time. I decided I would see what I could do on the Internet. Luckily my home office was set up years ago and is now serving me well as I try to build my own Internet presence.

But back to my question. If Baby Boomers are looking for a second income to supplement their pension and social security payments then the Internet may provide a way to do that. It can be a low cost, low risk opportunity to create a second income if done right. However it is something that will require time and commitment to make it work. Take my own experience.

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I have said on this blog that the Wealth Management Industry want a slice of the $40B they believe we Baby Boomers have. We will become their primary source of income if we don’t watch out.

Once again I will qualify this by saying that not all wealth managers are like this.

It’s still a Free Country though and so Baby Boomers can still say ‘No’ to the expensive hyped-up investments they sell. However their marketing machine is built on fear and greed and they play on our fear and greed with their sales pitches not only to us but to people they want to recruit to sell their products.

The Tsunami of Wealth Mangers wanting to help us invest our Nest Egg in Retirement has begun. The first wave is to recruit an army of sales people attracted by greed and teach them how to put fear in Seniors and Baby Boomers so they will hand over their money to them for “investing”.

I came across this one Prospect to Profits whilst researching this post. Read the rest of this entry »

Baby Boomer angst over retirement was the subject of a program on CNBC last night. I watched it with interest. Whilst it was full of information, the people who spoke and answered questions really did not help Baby Boomers plan their retirement. Some of the information was darn-right dangerous in my view.

Why?

Almost everything that was spoken about was presented as if it was sure thing. The main theme was invest in stocks for the long term and you will be okay. There was no mention of the risk to your nest egg or the need to protect it. In retirement you should look at all investments from the point of view of risk. How much are you prepared to lose if the investment turns sour? No one mentioned this.

None of the presenters talked about the number one rule in retirement, the need to protect your nest egg from major loss when you are in retirement.

It was as if the 40% decline in the S&P 500 in 2000-2003 and the recent 2007-2008 down markets never happened. Don’t they know the market is still down 11%?

Many Baby Boomers do not have enough of a nest egg on which to retire. This accounts for much of the angst Baby Boomers are feeling. But this program implied they should not worry because by investing (gambling) all their nest egg in stocks they will get the growth that will fuel their pension.

Jim Cramer’s Lightning Round was entertaining but irresponsible in my view and targeted the wrong audience. If I was in my 20s of 30s I might take him up on his advice. But going into retirement - no way. His view is to fully invest your nest egg for the long term and ignore the market volatility. I believe that is about the worst thing you can do in retirement. What he is telling you to do it to put your hard earned nest egg at the risk of the markets and hope the returns will be there and the market will be up each time you need to draw a pension.

There is a saying that the market always comes back and if you look at the long term chart this is true. But the speed with which it returns and how much it rises can vary from months to years. Will you be around to enjoy it. After the bear market of 1973 -1974 the market was flat until the early 1980’s. It was also a period of very high inflation so stocks did not protect your nest egg then either.

If you download my FREE Report “What if You Retired in 2000?‘ you will see that the average S&P 500 Return over the period 2000 to 2007 was less that 3% and it included dividends. Basically using a buy and hold strategy your nest egg would be under water by as much as 40% still after 8 years. Take a look if you want proof.

You may be lucky and it might work - but no one knows including Jim Cramer. This is gambling with your retirement. Do not do it with nest egg money.

If you still want to invest in stocks then look at ETF’s for an index of stocks to protect you from a CitiGroup or a Bear Stearns. But only consider investing about 30% of your nest egg in equities and use stop losses to get you out of an investment if it does not go your way. Look at the CitiGroup chart and apply a 10%-15% stop loss and see how it would have protected you if you had purchased that stock.

Or look at Bear Stearns and apply a similar stop. Also note Bear Stearns stock price was becoming parabolic, a sure sign you should get out. What is interesting here is the recommendations from the brokers.

In November of 2006 Punk Ziegel & Co recommendation was to Accumulate the stock with a comment as follows,

“Broker cites positive industry developments that suggests better-than-expected performance in 2007 and 2008 ”

Even in April 2007 Deutsche Bank Securities had a hold on it with a price target of $169 with volume increasing but the price dropping. With a 10% to 15% stop loss you would have been out of this stock. Following the broker advice on this shows you might have got $10 back on it in the last few weeks if you hadn’t got out at a stop loss of about $140.

How much of your nest egg would have been invested in financial stocks since 2003 when they took off because the advice you got was to chase high returns when you should have been concentrating on capital preservation. Right now you would have lost 35% or more on those investments.

Personally I believe Suze Orman was the only one who offered good advice to Baby Boomers with the limited time she had. It was a pity she did not get a chance to expand on her advice on individual bonds.

My advice is find a financial planner based on my post 10 questions to ask your financial planner and have them help you through the retirement planning maze with the emphasis on protecting your nest egg in retirement and with you in charge.

Note: The Charts are courtesy of www.BigCharts.com

It’s taken some time but I finally finished it. My FREE Report on “What if You Retired in 2000?” is my personal attempt to try and found out how a $1M nest egg would have performed under four different scenarios from 2000 to 2007.

It taught me a lot about how money works in retirement. I was shocked at how hard it was to get back money lost in the Dotcom crash whilst taking a pension.

The Report includes my detailed analysis of four scenarios and includes the spreadsheets from which the report is draw. The spreadsheet can be downloaded and used by Baby Boomers to learn for themselves the lesson of avoiding large losses in retirement as well as several other useful lessons.

What I believe makes my report different is it is from a Baby Boomer perspective and includes real S&P 500 Market returns from 2000 to 2007 as well as real inflation rates. The results using these real figures are compared to the financial industry favorites of long term average market returns and assumed inflation rates.

The results may shock you. But I would prefer that you use it as a spur to action to get control of your nest egg. (click on the picture to download the FREE Report)

The Wealth Management industry use a well known cliche “If you fail to plan, you can plan to fail” to help try and sell their investment products. The vultures are circling because figures show 77 Million Baby Boomers control around $40 Billion. Its too good to miss. Here is a quote from an article on Insurance Journals web site. Read the rest of this entry »

Hands up all those Baby Boomers who want to survive in retirement? I know I don’t. I want to live in retirement. That means not having to check our retirement nest egg every month to work out how much we can take to live on.

I don’t intend spending up big, but I do want to maintain my lifestyle in retirement.

I don’t want to wake up at night in a cold sweat wondering if I will be able to draw some of my nest egg this month because the Dow dropped 3%. This is just going to make me ill and I’ll probably die younger than I should.

The problem is that many Baby Boomers have ALL their Nest Egg invested with a financial planner. Most if not all are in Mutual Funds. So this could be their lot unless they change some things around.

Okay, I know our nest egg is probably invested in balanced, properly allocated and fully diversified funds. Everything is done according to the “book of financial planning”. But is it in our best interest when we are in retirement? Read the rest of this entry »

Baby Boomers you’ve got to know when to buy and hold ‘em and know when to buy and fold ‘em as Kenny Roger’s tells us in his famous song. Most financial advisers will tell you to buy and hold your investments for the long term, as the market always comes back. Well the market will always come back - until it doesn’t. In retirement this should be called buy and hope investing because no one  knows if the market will come back the next time or, how long it will take when it does.  Markets really don’t care about you or your retirement. In 2000-2003 it didn’t care about those who retired then and suffered up to 40% losses on their nest eggs. So you need to use a Buy and Fold strategy.

Some retirees hung in there and may have got some of their nest egg back in late 2007 only to be hit again by the Sub-Prime fall-out. For many though the pain might have been too great and they would have cashed out losing up to 40% of their nest egg. Many of those people are probably still working today trying to re-build their nest egg, when they should have retired in 2000.

The primary aim for every Baby Boomer in retirement is to protect their nest egg against large losses. So a buy and hold strategy will not work. Stop losses have to be employed to get you out of the markets to protect your capital.

Buy and hold for the long term for a young person makes some sense, but buy and hold for the long term may become buy and hope for retirees, as they run out of money waiting for the market to return. Or they may be forced to sell their investments in depressed markets at fire sale prices just to pay themselves a pension.

So make sure you or your financial planner set stop loss exits on all your risk-based investments to take you out of the markets and avoid large losses. There is nothing wrong with a Buy and Fold strategy if it protects your Nest Egg against large losses in retirement.

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Baby Boomers are forever being told to invest their nest eggs in risk-based investments for the long term. But you could be committing financial suicide unless you understand you will need short term luck for long term survival in retirement. It doesn’t matter how long you have been investing in your nest egg. The day you retire and start to draw a pension and stop contributing to your nest egg everything changes.

It is important to understand this and make sure your financial planner understands this too. Your long term begins the day you retire. But initially short term market volatility can have an adverse affect on your retirement nest egg.

What is different in retirement is you need short term luck with a few years of good returns to get you into the long term for your retirement success. If this does not happen in the first few years your nest egg may sustain losses too large for it to recover from, no matter how long you live.

At 25, 40 or even 50 you have some chance to recover over the long term because you are still contributing to your nest egg and you are not drawing a pension from it. But at the point of retirement this all changes and there is no more time to recover to get into the long term and there may be no other funds to invest to recover your nest egg’s capital.

You may say that you intend to continue working. That’s fine, but what if you can’t work or can’t find work. As we get older our insurance premiums go up because we are more likely to become ill or get injured. If the insurance industry knows this we should take notice. Why risk it if you don’t have to?

Baby Boomers will need short term luck for long term survival if they continue to believe that putting all their retirement nest egg in risk-based investments makes sense after  they retire. They may need short term luck too if they are relying on staying healthy in retirement so they can continue working. Both are high risk strategies in retirement. There are ways to manage and control risk in retirement. It is in your long term interest to find out how.

I thought I’d have some fun with the serious business of why Baby Boomers often fail to take control of their nest eggs. Here are 22 reasons I thought of that might cause this to happen. I’m sure there are many more. If you have one or more why not add them to the list?

1. I don’t understand financial things at all, I leave that to the professionals.
2. My partner/spouse handles all our financial issues.
3. My financial planner does all that for me.
4. I don’t have enough money to worry about.
5. I am nowhere near retirement yet.
6. I believe it will all be fine when I retire.
7. I have plenty of money in my nest egg so I needn’t worry about it.
8. I doubt I’ll ever have enough to retire.
9. I intend working for as long as I can.
10. I’d rather spend it now and live off social security if I have to.
11. My kids will look after me in my old age.
12. I’m waiting on an inheritance from my relatives.
13. It’s none of your business.
14. I don’t like to think about it.
15. The government will take care of me.
16. I am going to downsize and live off the excess.
17. I am moving to a less expensive location.
18. I’m going to find someone rich to marry.
19. I’m going to make my fortune on the Internet.
20. I’m going to work part-time in retirement.
21. I have a friend in the business.
22. I have a friend who knows someone.

Most of us hate thinking about financial matters. A dentist drill may be more welcome than facing the reality of managing our nest egg. But failure to take control of our nest egg could seriously jeopardise our long term financial survival in retirement. Conversely, a little time spent learning how to take control of our nest egg could seriously enhance our long term survival. This does not necessarily mean doing our own investing. It may just mean learning how to manage our financial planner.

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