A daily cup of coffee ends up costing a lot more than you think

Business Insider

coffee smelling
coffee smelling

(Reuters/Alberto Lowe)
As a young man, Warren Buffett estimated he could save $300,000 over his lifetime by adjusting his haircut schedule.

Americans looking for ways to contribute to retirement funds can similarly look to their daily purchases — such as their morning cup of coffee — for potential savings, according to a Vanguard Blog for Advisors post by Frank Kinniry.

“By pocketing the $3.50 for coffee each day and investing it instead in a low-cost, diversified Roth IRA, you’d have an estimated $106,000 after 30 years,” writes Kinniry. “I don’t think anyone would pay $106,000 for coffee!”

This type of incremental savings plan is also endorsed by David Bach, author of “Smart Couples Finish Rich.”

“Becoming rich is nothing more than a matter of committing and sticking to a systematic savings and investment plan,” he writes. “You don’t need to have money to make money. You just need to make the right decisions — and act on them.”

Bach estimates the amount of daily savings needed to reach $1 million by age 65 in the the chart below. While it makes certain assumptions about how those savings will grow through investment — such as a 12% annual return rate — it illustrates the impact even a modest savings plan can have in the long run.

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(Business Insider)

But Americans, particularly millennials, have struggled to meet recommended savings goals. Kinniry notes that while Vanguard recommends saving enough so that retirees can spend 75% their annual income from when they were working, the median account balance among Vanguard retirement plan investors fell by 11% from 2014 to 2015.

But that trend is not irreversible, especially for younger investors.

 “The best way to change that trend is to continue to encourage your clients to look at their spending through a compounding lens and to calculate how much their regular purchases would equate to over time,” writes Kinniry. “Time is the biggest advantage young investors have.

Why the US can’t kick its addiction to Social Security numbers

One Ring to bring them all, and in the darkness bind them.

—J.R.R. Tolkien

David Haas doesn’t like to give out his Social Security number. He fends off all the requests he can, from doctors, credit card companies, the bureaucracy at large. In the end, it was summer camp that got him.

“If the camp refuses your child because you won’t divulge your Social Security number, you end up giving in,” said the Franklin Lakes, N.J., financial planner. Haas kind of caved to his daughter’s school, too.

Don’t be too hard on him. It is the number that rules us all.

Social Security numbers, which identify the retirement accounts Americans build up over a lifetime of paycheck deductions, are taken in the vast majority of data breaches, simply because they are ubiquitous. They’re a juicy target. Together with other basic information, like name and date of birth, the Social Security number is a passport to a person’s identity. Unlike a credit card number, which can be instantly canceled, the SSN serves most people for their entire lives, with some 496 million issued since the first batch of cards went out in 1936. Its use as authentication for personal accounts has expanded the opportunity for fraud.

The government has tried to lessen our dependence on the Social Security number as the ultimate identifier and authenticator—for example, some states ask for a driver’s license or state ID on income tax forms. Within its own ranks, the federal government is locked in a struggle to reduce the “unnecessary collection, use and display” of the number. In 2007, a presidential task force issued recommendations to “help prevent the theft and misuse of consumer’s personal information.” A decade later, on May 23, the Government Accountability Office testified about a GAO progress report on executive branch efforts to address the recommendations. The verdict: “These initiatives have had limited success.”

Among the initiatives was a proposed “alternative federal employee identifier” on Office of Personnel Management forms. That was abandoned as impractical “without an alternate governmentwide employee identifier in place.”

An estimated 17.6 million people, or some 7 percent of American residents 16 or older, suffered at least one instance of identity theft in 2014, the latest year of data available from the Bureau of Justice Statistics. And that was before mega-breaches like the one at the health insurer Anthem and at the Office of Personnel Management itself.

“We are bleeding fraud with the use of SSNs ,” said Eva Velasquez, chief executive officer of the non-profit Identity Theft Resource Center , which helps victims of identity theft.

Attempts to check the SSN’s proliferation have been failing for nearly half a century. As early as 1971, a Social Security Administration task force proposed that the agency take a ” ‘cautious and conservative position’ toward SSN use and do nothing to promote the use of the SSN as an identifier,” according to The Story of the Social Security Number, on the agency’s web site. No luck.

How about fingerprints? Government agencies including the Veterans Administration and the Post Office have tried them, but they came with the whiff of criminality. The bald string of numbers seemed the more practical way to go.

In its early days, the SSN wasn’t widely treated as sacrosanct.  In 1938, a wallet manufacturer in New York, which wanted to advertise how well those new Social Security cards fit into its billfold, used the actual number of its treasurer’s secretary, one Mrs. Hilda Schrader Whitcher. Mrs. Whitcher’s secret identifier (078-05-1120) was soon on display at Woolworth and other department stores around the country.

By 1943, nearly 6,000 people were using her number, according to the Social Security Administration, which voided it. Over the years, more than 40,000 people claimed the number as their own, and 12 people were found to be using it as late as 1977.

“They started using the number. They thought it was their own,” the real 078-05-1120 said, according to a history on the Social Security Administration web site. “I can’t understand how people can be so stupid.”

Since then, many companies and government agencies, while using SSNs internally, have at least stopped displaying them on ID cards and using them as subscriber numbers. Many use unique numbers, sent to a recognized device such as a cellphone, in place of the familiar request for the last four digits of the Social.  Some have suggested creating individual encryption keys, sort of like the code-generating tokens that workers use to access their computers from outside the office. Another idea, a national identification card, “creeps people out, because it seems very Orwellian,” Velasquez said.

Even creepier, she said, one frustrated consumer proposed that the government “just microchip me so you can scan me and thieves can’t dig it out of me.”

Until we all get chipped, the only person who can sharply curb the use of your Social Security number is you.

“Don’t blindly provide it because you’re asked for it,” said Gary Davis, chief consumer security evangelist for anti-virus software provider McAfee.

The tricky part is that you can be denied service. The Social Security Administration recommends asking why the number is needed, how it will be used, what will happen if you refuse to give it, and what law requires you to give the number to a private business. For example, there’s no legal reason you must give it to your doctor. Doctors almost always ask for it, though, sometimes because they’re using outdated forms, or for patients on Medicare, since your Medicare number is your Social Security number.

On income tax forms and financial accounts that wend their way to the Treasury Department, the ritual asking for and giving of the Social Security number is all but inevitable. Same with food stamps, child support enforcement programs, and state commercial driver licensing programs. Credit bureau TransUnion says the nine-digit wonder is indispensable.

“We consider the SSN to be an important part of the consumer reporting and credit granting ecosystem, and many regulators and consumer advocates recommend this approach, where available, for accurate matching,” TransUnion spokesman Dave Blumberg said in an email. “The SSN is also an important tool in identity verification and can help lenders to detect and prevent identity theft.”

Opening a bank or brokerage account requires a customer identification number, most likely a Social Security number or Individual Taxpayer Identity Number, according to anti-money-laundering provisions in the Patriot Act, the security law passed after the 2001 terror attacks. An auto insurer might demand the Social to ensure, say, that the credit information for an applicant is really for the driver operating the vehicle. Life insurers want it because it’s a good way to find a “lost” policyholder, or find out if the policyholder has died, by consulting the Social Security Master Death File, said Loretta Worters of the Insurance Information Institute. An SSN can also help find beneficiaries, she said.

Still, if in doubt, ask:  Why do you need it? How will you use it? Do I really have to give it?

New Medicare cards are going out without the SSN on them, but for those over 65 the number is sitting in their wallet. Medicare has until April 2019 to comply with a 2015 law requiring it to create a Medicare Beneficiary Identifier. An MBI generator will initially assign 150 million new 11-character identifiers made up of numbers and capital letters. Hassle alert: The transition will run from April 1, 2018, through December 31, 2019, the Medicare web site says. Medicare notes that the MBIs “will not contain inappropriate combinations of numbers or strings that may be offensive.” Because, of course, that’s our big worry.

The Social Security Administration is taking action, too. On June 10, Americans will need to turn on multi-factor authentication on their My Social Security accounts, which have been targeted by thieves setting up accounts using stolen SSNs to collect benefits.

As for Haas’s kids, or, more to the point, yours, the American Camp Association says it doesn’t require member camps to gather SSNs. But browsing through camp applications online, one finds the camper’s Social, or its last four digits, in demand on camp financial aid forms, authorization forms for medical emergencies, and so forth, sometimes accompanied by a promise to destroy the documents at the end of the season.

Will the U.S. ever break its addiction to the Social Security number? The Office of Personnel Management did begin exploring the use of “multiple alternate identifiers for different programs and agencies” in 2015, the GAO report said. The idea was to collect a Social Security number just once, when an employee started working, and then use different identifiers for different programs, like health-care benefits. The work was put on hold for lack of funding.

Some fear we’re just going to come up with another unique identifier that can be compromised, said Velasquez, of the Identity Theft Resource Center. But she’s hoping something will happen in her lifetime. She’s 45.

Two-thirds of Americans are worried about their financial future

Though many workers look forward to retirement, it can also be a scary prospect. For the first time in your life, you’ll go from earning a steady paycheck to relying on Social Security and, ideally, your savings to make ends meet. But while retirement should be a welcome change in theory, a growing number of Americans are more concerned about it than anything else.

In a newly released study by Country Financial, 67% of Americans say they’re worried about their financial future. Many, in fact, fear they won’t actually manage to retire at all given their financial circumstances.

It’s data that’s far from shocking. The Economic Policy Institute reports that nearly half of Americans have no retirement savings at all, and more than 50% of those surveyed admit that they don’t actually include retirement when mapping out their financial goals.

Why does retirement so frequently get pushed to the back burner? Often, workers have no choice but to focus on more pressing priorities, like managing their short-term bills. In the aforementioned study, 44% of respondents said they’re more focused on finding ways to deal with unplanned expenses than retirement. Meanwhile, 41% are more fixated on dealing with their healthcare costs.

Now it’s true that you can’t ignore your immediate obligations just to save for retirement. After all, if your roof collapses to the tune of a $5,000 repair or you’re hit with a $5,000 medical bill, you can’t just ignore those expenses in order to stick that money in your IRA or 401(k). That said, many workers can do better when it comes to saving for retirement. It’s just a matter of getting their priorities straight.

There’s more room for savings than you think

A large number of Americans live paycheck to paycheck, and spend every last penny they earn on their day-to-day expenses. But not everyone who lives this way actually has to. While there are countless Americans working multiple jobs and still living below the poverty line, others who aren’t saving do have the ability to change their ways — if they’re willing to make sacrifices.

How do you know which category you fall into? It’s simple. Take a look at your budget and see if there’s anything you’re currently spending money on that you don’t actually need. Your cable package, for example, is a reasonable thing to want, but you don’t actually need it the same way you need food, housing, and a means of getting to and from work.

Once you’ve identified those nonessentials, you’ll need to work on eliminating at least some of them. Will it be easy or pleasant? Probably not. But if you don’t start finding ways to put money aside for retirement, you’ll risk having inadequate income at a time in your life when you’re older and far more vulnerable. Or, worse yet, you’ll join the ranks of people who never actually manage to retire at all.

Small savings can go a long way

Another reason so many people don’t save for retirement is that the idea just seems daunting. After all, if you’re already living paycheck to paycheck, whether by choice or out of necessity, how on earth are you supposed to come up with, say, a $200,000 nest egg?

Here’s the thing, though: If you’re willing to put a small amount of money aside each month, and you invest that money wisely, you can turn a series of minor contributions into something major over time. It’s a concept known as compounding, and it basically means earning interest on top of interest so that your savings keep growing.

Say you’re able to save $100 a month for 30 years but not a penny more. If you were to take that money and put it in a checking account paying no interest, you’d have just $36,000 in time for retirement (which, incidentally, is more than what many near-retirees have but still not enough). On the other hand, if you were to invest that money at an average annual 7% return, which is actually a couple of points below the stock market’s average, you’d end up with roughly $113,000 — a far more comforting number. In fact, if you were to somehow manage to sock away $500 a month for 30 years and generate that same return, you’d have well over $500,000 to work with in retirement.

Nobody ever said that saving for retirement would be easy, but rather than spend your time worrying about your financial future, you can, and should, take steps to fix it. Attaining financial security in retirement often boils down to living below your means during your working years and being vigilant about saving. And if you’re willing to make the effort, you may come to change your outlook to one that’s far less bleak.

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Why millionaires are more afraid than ever nearly 40%

Millionaire confidence plunged by a record amount in May, sparked by fears of government dysfunction in Washington, D.C.

The Spectrem Millionaire Investor Confidence Index, a measure of millionaire confidence in the economy and markets, fell 17 points from April. That’s the biggest month-to-month drop ever recorded by Spectrem Group, a Chicago-based wealth-research firm that created the index.

The survey found that almost four in ten (39 percent) of millionaires plan to avoid investing in the coming month — the highest percentage since December 2013.

The main reason for the drop: politics and the turmoil surrounding the Trump Administration.

The top concern cited by the millionaires surveyed was the political environment.

“Even though the stock market remains at near-record high levels, millionaire investors are becoming increasingly cautious,” said Spectrem President George H. Walper Jr. “This is likely due to growing concerns about the weakening political position of President Trump given recent controversies, the declining likelihood of substantive tax reform in the near-term, as well as concerns about the recently submitted proposed federal budget.”

“Although non-millionaires also recorded a drop in confidence, the fact they are slightly more confident now than millionaires is a strong indication that we may be entering a tumultuous period for investors,” Walper said.

The political pessimism among millionaires is not being driven by Democrats, which would be predictable. The largest drop in the survey came among Republican millionaires.

“The Republican millionaires may believe they delivered the House, Senate and Presidency and still nothing is getting done, which ultimately may impact their economic views. They are worried that government dysfunction, which they identify as the most significant threat to the economy, could jeopardize both health care and the important tax cuts that may be fueling part of the stock market surge,” he said.

Of course, the stock market has continued to rally in recent weeks, which doesn’t suggest a panic among millionaires. And the survey is just a one-month snapshot.

But since millionaires own the bulk of the stocks and financial assets in the U.S., their fear could put a damper on stock-market growth in the coming weeks and months.

The Spectrem Millionaire Index measures the investment sentiment of households with $1 million or more in investible assets. The research was conducted between May 19 and May 23.