That's a mistake, says Benz. Next page: You aren't necessarily done with your kids after college. It's much harder to survive a major downturn without a paycheck. Even a part-time job at minimum wage can be a lifesaver if it helps you cover your basic living expenses without having to withdraw from a shrinking nest egg in a bear market.
Don't retire until you're confident you could pay your essential expenses for at least two years without having to tap your stock investments, says Steve Vernon, research scholar at the Stanford Center on Longevity.
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The surest way to achieve that goal is to boost your Social Security benefit by delaying your application. Social Security is guaranteed monthly income that doesn't fall when stocks do — and it lasts for your lifetime and your spouse's lifetime. Other sources of income that can help you survive a bear market without a paycheck include money market funds, certificates of deposit, short-term high-quality bonds and fixed-income annuities.
Many of us already knew that, of course — but the Great Recession really drove it home. Faced with the worst job market in decades, more than one-third of recent college graduates decided to return to school; and almost one-quarter of them took an unpaid job or moved back home with their parents. We're hardwired to help our children.
But it's vital to figure out how much financial help you can give without compromising your own security — and to communicate that reality to your kids, says financial planner Blayney. If your kids' college years still loom on your horizon, create a college budget that doesn't increase your debt or eat into your retirement savings. One option: two years at a community college, then transfer. If your college graduate is a boomerang baby, expect him or her to contribute to your household expenses. You won't be alone: Of those ages 25 to 34 who live with their parents or moved back home in bad times, 48 percent say they've paid rent.
The Great Recession touched a lot of people across the country. Did you feel the effects?
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In the meantime, please feel free to search for ways to make a difference in your community at www. Share with facebook. Share with twitter. Share with linkedin. Share using email. Just because you can qualify to borrow money doesn't mean you should The Great Recession was triggered by the collapse of an enormous credit bubble — a bubble fueled by institutions so eager to lend that they lowered their standards to qualify more borrowers.
Lessons from the Financial Crisis for Unconventional Monetary Policy
But in this regard, the acid test for monetary policy is still to come. I believe the answer here is to ensure that monetary policy has a symmetrical effect over the whole of the economic cycle: in a downturn, policymakers must respond vigorously, but in an upswing, they must also be able to tighten the reins again as needed - regardless of the impact this might have on governments' funding costs, for example. Monetary policy should have a stabilising effect similar to that of a cruise control system that keeps a vehicle moving at a constant speed.
When driving uphill, the power of the engine is increased so the vehicle does not slow to a crawl. As the road flattens out, the power must also be reduced. And on a downhill stretch, the car might need slowing down to stop it from going faster and faster. The euro area hasn't quite finished the uphill climb just yet.
Admittedly, the economy as a whole has experienced five years of uninterrupted growth and the latest unemployment rate, at 8. But domestic price pressures are still subdued, which is why monetary policy remains extremely expansionary. However, in the latest forecast from the ECB, experts anticipate that capacity utilisation in the economy will continue to increase in the next two years on the back of the robust upswing and its driving forces.
Core inflation in the euro area, which strips out energy and food, is therefore likely to rise from 1. And the headline inflation rate will probably persist at a level of 1. From my point of view, this is certainly largely compatible with our medium-term notion of price stability. As a result, it is now time to set about exiting the very expansionary monetary policy. The Governing Council of the ECB didn't set the boulder in motion in June, but you could say it got the ball rolling by indicating that it wanted to end the net purchases of government bonds and other securities at the end of the year.
How the rest of the return to normal monetary policy pans out will of course depend on economic developments, especially the path of inflation. But the financial crisis has taught us not to ignore the impact of long-term risks on price stability, either. Economists at the Bank for International Settlements underline that economic developments are affected not just by business cycles but also by financial cycles, which last for longer and fluctuate more strongly.
Because monetary policy can have an impact on the financial cycle, the BIS researchers suggest extending the time horizon for monetary policy. This would allow longer-term risks to price stability from turbulence in the financial system to be factored into monetary policy decisions to a greater degree. Given this long-term connection, it may be advisable, even for a monetary policy that focuses exclusively on the objective of price stability, to heed developments in financial markets.
I fully understand that the current period of low interest rates is a testing time for savers. Although households have for many years been able to offset their low levels of interest income - from savings, for instance - thanks to the good performance of other asset types, the real return on German households' financial assets entered negative territory at the beginning of the year. In part, this was because equity market prices lost some of their earlier dynamism. But it's fair to say that citizens are not just savers - they are also employees, property owners and taxpayers.
And as such, they benefit from the low interest rates. Of course, interest rates will also gradually pick up as monetary policy returns to normal. But what level they will ultimately reach depends on conditions that monetary policy cannot create. You see, in a long-term equilibrium, the faster the trend growth of an economy, the higher the interest rate. However, strengthening the forces of growth is a task for economic policymakers. Here, it will be vital to tap into the opportunities presented by digitalisation - through a suitable infrastructure, education, and, not least, market economy conditions such as modern competition law.
Economists are now focusing closely on what have been dubbed "superstar" firms - businesses which are becoming hugely powerful market players, mainly as a result of network effects in the digital segment.
And there is certainly far more scope elsewhere for strengthening economic competition and thus boosting productivity. Take, for example, the rigid fee schedules in the liberal professions, which tend to restrict opportunities for competition. The European Commission has also pointed this out in the past. What's more, isolationist tendencies in the field of foreign investment could be more of a hindrance than a stimulus for economic growth. Europe is also an important part of the answer to the challenge of increasing productivity. Conversely, demographic change is among the main factors dampening long-term growth.
Germany's ageing population means a reduction in the number of potential workers. By the end of the next decade, the ratio of the population of usual working age to older citizens will shrink from to roughly Demographic change will also place substantial burdens on social security systems and public finances.
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For the time being, there are three main levers which can be used to keep the impact on the statutory pension insurance scheme in check. One lever is the pension level. The current pension adjustment formula foresees a fall in relation to earnings. By contrast, according to the forecasts, the real pension level would continue to rise.
The second lever is the contribution rate. The rate is set to rise in order to curb the declining level of pensions. Yet, this is driving up labour costs and reining in the competitiveness of the German economy. It is thus essential not to pull this level too far. I believe that the same applies to a tax-financed increase in the Federal grant. As things are at the moment, the Federal grant will already have to rise more sharply than tax revenue. An additional increase would then either mean putting up taxes or cutting spending elsewhere. There's only so much pressure that the Federal budget can take.
Bundesbank experts, amongst others, have been pointing to the third lever - the statutory retirement age - for some time now. Life expectancy has been rising steadily to date, meaning longer and longer pension-drawing periods but stagnant contribution periods. This all points in favour of raising the retirement age beyond And studies show that higher life expectancy also means better health.
With stocks, you lose money when the market falls. But thinking only about that risk is like looking only one way when you cross the street. Look the other way and you'll see that with bonds, you risk losing purchasing power to inflation. The best solution: Divide your money between stock and bond investments. You need stocks because they can grow your money enough to keep pace with the cost of living. A healthy year-old man today can expect to live into his 80s, and a healthy year-old woman into her 90s.
You need bonds because they can put a floor under your stock market losses, says Christine Benz, Morningstar's director of personal finance. If you invest in both, you'll still lose money in a market meltdown — but you won't lose as much, and you'll recover faster.
From houses to money markets
Today, the safest bonds — short-term bonds with high credit quality — pay almost nothing. Many investors are abandoning them in favor of riskier high-yielding bonds. That's a mistake, says Benz. Next page: You aren't necessarily done with your kids after college.
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