Reuters Money

One man’s retirement crusade to help Detroit and baby boomers

Randal Charlton has had a long, colorful career with plenty of ups and downs. In his 71 years, he’s done everything from tending dairy cows for a Saudi sheik to starting a jazz club in Florida. And as a lifelong entrepreneur, he has bought and sold 14 different companies.

Charlton’s last venture was a Detroit-based biotech company called Asterand, which he co-founded and then merged in 2006 with a U.K.-based competitor. He was 67 years old after the deal closed – a time when many would hang up their spikes and take it easy.

Instead, Charlton took on a daunting new challenge: fighting Motor City’s economic blight by building a successful business incubator for entrepreneurs called TechTown. Charlton raised $24 million from foundations and government, gathered together an impressive array of resources for training and start-up funding and recruited a small army of start-ups that have created a total of more than 1,800 local jobs.

TechTown is located in an old five-floor automotive plant with 130,000 square feet. When Charlton took over, just one floor was built out, and the center was running on loans guaranteed by nearby Wayne State University. Since then, the incubator has been home to 250 companies, and more than 2,200 entrepreneurs have graduated from its training programs. Last year, 14 TechTown companies received capital infusions totaling more than $1.35 million. The incubator has invested $700,000 directly in early-stage businesses and helped clients raise $14 million in follow-on funding.

Charlton’s work has just been recognized with a 2011 Purpose Prize, announced today. The award, given annually by the Encore Careers campaign, recognizes older career trailblazers who have demonstrated creative and effective work tackling social problems. Now in its sixth year, the prize was created to promote and encourage civic engagement among baby boomers. It’s a program of Civic Ventures, a nonprofit that works to engage boomers in encore careers combining personal meaning, income and social impact.

Each prize winner receives $100,000. The other winners this year include a San Francisco-area screenwriter who adopted two daughters from China in her fifties, then found a way to partner with the Chinese government in efforts to transform the care of 800,000 orphans there; an Oregon woman who produces and distributes low-cost, safe, fuel-efficient cookstoves in Latin America; and a Santa Fe, New Mexico architect working to improve energy efficiency and reduce emissions in buildings.

A native of England, Charlton started his career after college as an agriculture journalist, and then worked for an agricultural export company. His work has taken him to 40 countries and many adventures, including living for weeks in a Saudi Arabian desert nursing a sheik’s herd of cows back to health. Later he acted as a consultant for cattle breeding associations and for the European Development Fund, and as an executive for several global biotechnology companies.

Zap zombie funds within your portfolio

Do you have zombie index funds within your portfolio?

Instead of eating up your brains, they devour your nest egg with high expenses and walking dead performance. They may be lurking within your 401(k)-type plan or individual retirement account.

I like index funds because they generally can track nearly any kind of asset class. As such, they are the white bread of investing and should cost about the same from fund to fund. The cheaper the better. Why pay Nieman-Marcus prices for the same thing you can get at Costco or Sam’s Club for less?

You can vanquish these funds without overtly violent acts, but first you have to identify them. Unfortunately, mandated fee disclosure is still pending, so you have to take the initiative.

So how do you identify a zombie fund? First you need a reliable benchmark for comparison purposes. The easiest way is to look at the index that the fund is supposed to be tracking. A good proxy for the U.S. bond market, for example, is the Barclays Capital Aggregate Bond Index. It’s a basket of listed bonds. If a fund tracks the index return within 0.20 percentage points or less, then that’s pretty good and not expensive.

A low-cost bond index fund would look like the Fidelity Spartan Intermediate Term Bond Index investor class fund, with a 0.20 percent expense ratio. You’d need at least $10,000 to get into this fund, though.

You want to pay a manager more to get less return on bonds? The ING US Bond Index portfolio charges a hefty 0.95 percent annually, meaning it will lag the index by nearly a full percentage point every year.

Jobless rate for older workers is lower, not better

Rick Lopatin has been looking for work for three years. The 56-year-old is the former chief financial officer of a middle-market pharmaceutical company in the Chicago area; ever since a merger and his subsequent job loss in 2008, he’s been job-hunting and networking intensively, and he’s landed  several interim CFO engagements – including one at a medical devices company on Long Island.

That company offered to make the job permanent, but Lopatin turned it down. He figured the position might have lasted just a few years, and it would have required relocating from the Chicago suburbs, where Lopatin’s wife has a secure managerial position at one of Chicago’s largest hospital systems — a job she’s held for 15 years. “We just couldn’t afford to put that income at risk,” Lopatin explains.

Lopatin’s experience helps illustrate the sharp contrasts in national unemployment data between older and younger workers. The unemployment rate for workers over age 55 is much lower than for the workforce as a whole – it stood at 6.7 percent in September, compared with the 9.1 percent national rate. But at the same time, workers over age 55 who do lose their jobs tend to be jobless far longer – 54.8 weeks, compared with 38.6 weeks for younger workers as of last week.

Reduced mobility helps explain the longer job search time, says Sara E. Rix, an expert on workforce and employment issues at the AARP Public Policy Institute. “Older workers may be ready and willing to move, but they’re not able to do it due to a spouse with a well-established career,” she says. Age discrimination plays a role, too – and Rix thinks some older workers  struggle to acclimate to job hunting when they’ve out of the market for a long time. “At least initially after a job loss, there’s evidence that workers who do get offers tend to hold out for something better. As the jobless period gets longer, they’re willing to accept less than at the beginning.”

What’s more, the lower 55+ jobless rate doesn’t really mean older workers are having an easier time finding new jobs, Rix says. Rather, she thinks it reflects a trend among employers to hang on longer to more experienced workers. The lower jobless rate also reflects a greater tendency of older workers to become discouraged about finding new jobs, and drop out of the labor force entirely. The Bureau of Labor Statistics doesn’t count workers who have stopped looking for jobs in its unemployment calculations, and that brings down the overall 55+ jobless rate.

But don’t mistake discouragement for lack of interest in a job. Rix notes that there’s been a steady rise in labor force participation by older workers – in fact, the number of employed workers over age 55 is up 11 percent since December 2007.

Medicare Part B premium hike will be smaller than expected

Seniors caught a break Thursday when the Obama Administration announced that Medicare Part B premiums won’t rise as much as expected in 2012.

The premium for Part B – which funds doctor and other outpatient services – will be $99.90 in 2012, up just 3 percent compared with this year. And the Medicare Part B deductible will be $140, a decrease of $22 from 2011.

The official government 2012 Part B premium forecast had been $106.60 – an increase that would have taken a significant bite out of Social Security’s cost-of-living adjustment (COLA). Although Social Security beneficiaries will receive a 3.6 percent raise next year, the average beneficiary’s increase would have been shaved to 2.95 percent if the larger Part B increase had been implemented. Part B premiums are deducted from most seniors’ Social Security benefits.

Today’s news means that seniors receiving the average monthly Social Security benefit ($1,177) will see a net 3.3 percent gain in payments – just under $39 per month.

In 2010, the Part B premium jumped to $110.50 from $96.40, and it rose to $115.40 in 2011. The rate is determined partly by healthcare inflation — but also the number of seniors who actually are subject to higher premiums. By law, the premium cannot rise in any given year by a greater amount than the Social Security COLA – a “hold harmless” provision aimed at preventing Social Security payments from ever falling. About 75 percent of beneficiaries were exempted in this way from Part B premium increases in 2010 and 2011 – years in which no Social Security COLA was made.

Medicare enrollees cover 25 percent of projected Part B program costs; in 2010 and 2011, that projected cost was borne by a much more narrow base of beneficiaries. This year’s Social Security COLA means that beneficiaries’ portion of Part B cost will be spread across a much broader pool of seniors, resulting in the more modest premium hike.

The new premium will mean a decrease for seniors who enrolled in Medicare for the first time this year, and have been paying the $115.40 rate. It should also lead to decreases for high-income seniors, who were subject to the higher base premium, along with additional income-related surcharges.

Tax deductions are popular, but penalties may work better

When making tax policy, there’s a choice between carrots or sticks: Does the government give taxpayers credits or deductions for doing the right thing (buying their homes, giving money to charity, not emitting greenhouse cases) or penalize them for doing the wrong thing?

Brian Galle, who is on leave as an assistant professor at Boston College Law School and currently a fellow at the Urban Institute in Washington, DC, has been analyzing those choices, and come to a surprising conclusion: Expenditures may be politically expedient, but penalties would often be preferable for fiscal policy.

In his forthcoming paper in the Stanford Law Review, called “The Tragedy of the Carrots,” Galle argues that carrots are overproduced and often misguided, costing the Treasury funds that would be better spent elsewhere in an effort to nudge people towards the behavior it hopes to reward.

“The problem with tax expenditures is not that they are in the tax code, but that they are expenditures,” Galle explains in a recent telephone interview.

As Washington debates tax policy and budget cuts, Galle’s ideas are particularly relevant. Tax expenditures — those credits and deductions that favor some taxpayers over others — have grown dramatically over the years, and their cost to the Treasury is over $1 trillion dollars.

Last year, when the national deficit commission, co-chaired by Alan Simpson and Erskine Bowles, released its bold tax proposals, one of them called for eliminating all the expenditures and lowering marginal tax rates to 8 percent, 14 percent and 23 percent. The commission’s ideas went nowhere, and today the congressional supercommittee is hashing out its plan for budget cuts and tax reform.

Galle’s theory goes one step further in thinking about rewards versus penalties. Economists consider carrots and sticks pretty much indistinguishable. There’s not much difference, as Galle points out, between taxing someone a dollar for each cigarette smoked, versus giving someone a dollar for each cigarette thrown in the trash. Either way, smoking is penalized, and the cost to you (whether explicitly in the tax or implicitly in the foregone reward) is one buck.

With few female angel investors, signs of change

In the traditionally male world of angel investing, Ed Reitler is used to having his voice heard. A partner in Reitler Kailas & Rosenblatt LLC of New York City, he’s also the founder of the ARC Angel Fund, a New York-based investing launched in 2010. So when he says that it’s “incredibly important” to develop female angel investors because “they are crucial to ensuring the funding of a more diverse group of companies,” you’d hope his male counterparts would take notice.

After all, Reitler’s got a point. A 2006 report by the Ewing Marion Kauffman Foundation on women and angel investing concluded that “women entrepreneurs gravitate to women angels,” and that those benefactors “look at more women’s start-up businesses than some of the more traditional [male] groups do.”

That also explains why Reiter serves as a male mentor to the Pipeline Fellowship, a group that trains women to become angel investors through education, mentoring and practice. Its young founder and CEO, Natalia Oberti Noguera, is a lady on a mission: to change the lopsided ratio of male-to-female angel investors, and get female angels involved in finding and supporting female entrepreneurs.

In a new report from the Center for Venture Research at the University of New Hampshire, author Jeffrey Sohl outlines how women represent just 12 percent of all angel investors, and women-owned ventures account for 12 percent of entrepreneurs seeking angel capital. Of these ventures, about one in four received angel investment during the first two quarters on 2011.

Low as those numbers look, they were actually higher in 2010, when 13 percent of angels were female, and women-owned ventures accounted for 21 percent of entrepreneurs seeking angel capital.

Less than two weeks after the Center for Venture Research released its findings, Oberti Noguera hosted an event in New York City on Oct. 20 to announce that Pipeline’s 2011 fellows would invest $50,000 in PhilanTech. Based in Washington, D.C., the company produces an online grants management system for foundations, nonprofits and corporations.

Combined with another $55,000 from the Pipeline Angels alumni network, that means $105,000 in fresh capital for a company that had struggled to gain investment traction — even though PhilanTech’s founder, Dahna Goldstein, was lauded by Bloomberg Businessweek as one of 2009’s most promising social entrepreneurs.

Meditations on money mania: Why we gorge on the financial buffet

Are you a money maniac? While finishing up Michael Lewis’s “Boomerang,” his latest book on the financial meltdown, I was intrigued by a few of his observations on a cultural and psychological malady.

Since some of my academic training is in psychology, I’ll take a stab at what I think is going on. We spend (and eat) too much because the culture encourages it at every turn, but we have the ability to resist temptation. We’re hardwired to do the wrong thing, yet can still make rational decisions.

There’s also a part of the brain that Lewis didn’t really explore in much depth. I’m not sure what it’s called, but it involves conflating risk with the likelihood of financial success. Behavioral economists have many descriptions of these miscues. One might call it intentional and persistent denial.

Invest in the stock market through your 401(k) and forget about the risk to your long-term wealth! Use those multiple credit-card offers you get in the mail every week to borrow to the hilt! Get an extra 10-percent off at the department store if you sign up with their onerous credit plan!

We just can’t escape what I call “the buffet effect.” All of these financial goodies are laid out all the time for one seemingly low price. So we gorge on this table of plenty, only to later find out how empty financial calories can hurt us. Many of us just can’t help ourselves. That’s our culture. We’re not only in the land of plenty, we’re in the never-never land of too much.

When I eventually waded through Lewis’s perversely scatological insights on Germans and wondered if Icelandic men were really that overconfident that they could morph from fishermen to currency traders in a matter of weeks, I found a real nugget in the research of Peter Whybow a psychiatrist and neuroscientist.

Dr. Whybow, author of the more useful American Mania: Why More Is Not Enough, says it’s our “lizard brain” that is driving our overconsumption. After all, when we were living in caves (and much earlier), we hoarded food and firewood and worried about saber-tooth tigers. Now we substitute debt-driven obsessions for those primal concerns. Maybe we squirrel away credit cards because of a misperception of scarcity.

Turn home into a winter wonderland, reap profit later?

Want to kick up your feet no matter how hard the cold weather kicks its heels? With winter on the way, we examine luxury renovations ideal for cocooning. Judge for yourself whether they’re worth a set of blueprints and a stack of greenbacks.

Item: Home theater system

Why you want it: Screening movies in your own theater — complete with rump-shaking sound and a larger-than-life picture — can bring out the Hollywood mogul in anyone. Cost: Estimates vary widely, but figure a minimum of $5,000 for a high-end setup that includes 7.1 Dolby Digital surround sound, at least seven speakers and a subwoofer, amplifiers and a 73-inch rear projection TV that can reproduce 3D and HDTV images. Rich Conklin, a principal engineer with Grand Home Automation in Grand Rapids, says the company’s “Signature Series” surround systems range from $15,000 to $30,000. Value: A survey conducted by Axiom Home Theaters in Dwight, Ontario, Canada found that a 375-square-foot home theater can add $15,000 to $25,000 to a house priced between $150,000 and $350,000. (Those figures apply to both U.S. and Canadian dollars.) However, this is one asset you can take with you to a new home, as many of the components are portable. Did you know?: Music engineer/producer Jeremy Kipnis designed a home theater system that reportedly cost more that $6 million, and incorporates three dozen-plus speakers and a motion-picture screen measuring 18 x 10 feet.

Item: Heated driveway

Why you want it: Who wants to shovel during a snowstorm when you can flick a switch and melt the white stuff away? Cost: About $1,500 to outfit 100 square feet of driveway with radiant heating elements and controls, according to Warmup United States of Danbury, Connecticut. Heated Driveway Systems, a division of Warmzone in Salt Lake City, Utah, estimates operating costs at 28 cents per 100 square feet per hour. Value: A $2,000 investment in a heated driveway equals of 80 man-hours of shoveling, if you paid two local kids $25 each to shovel your driveway for an hour. Did you know?: In some cases, heated driveway systems can reduce the cost of homeowner’s insurance due to reduced risk of accidents from walking on slippery property.

Identity theft among family members affects millions

Two million to three million elderly parents had their identities stolen between 2006 and 2010 by a younger family member for fraudulent reasons including opening lines of credit, according to a new study.

The report by ID Analytics is different from typical surveys on the subject, which only capture what people say. This time, company CTO Stephen Coggeshall says, the figures are based on analyses of 1 billion applications for credit cards and cell phones that showed just how many times younger family members apparently fraudulently used their elder parents’ credit.

“We are literally looking at the entire set of credit-active people in the United States. Even surveys wouldn’t uncover this, because a lot of victims don’t know they’re victims,” he says.  “The realities of familial identity theft are far worse than anything you see in a soap opera. It is the ultimate in family betrayal.”

Identity theft expert Linda Foley, who runs the consultancy ID Theft Info Source says the sad truth is family members steal each others’ identities because they can. “If you want to steal a Social Security number, it’s far easier to steal the information of someone close to you because you have easy access.” And she adds that this is a  grossly under-reported crime because  it’s particularly difficult for the victims to turn in their own children. ”The egregiousness of this crime is the parents don’t feel the need to protect themselves from their own children,” she says.

Laws in most states adds extra penalties when the crime victim is a senior, and on Thursday Senators Amy Klobuchar (D-MN) and Bill Nelson (D-FL) introduced legislation  to protect seniors from fraud by court-appointed guardians and conservators. But legislation hasn’t yet translated into change. Last March when Mickey Rooney testified before Congress about elder abuse, he said he wasn’t a rare case of family members bilking money from older relatives, stealing their identities and committing other types of financial fraud. But what is rare about his case is that Rooney, 91, went public with it, and announced in September that he is suing his stepson and other relatives, alleging years of financial and emotional abuse that cost him millions.

The typical scenario of identity theft of older family members, Foley says, is when an adult child starts helping an elderly parent with the finances. When you’re older, she says, “It’s unlikely you’re going to be checking your credit report all the time. So they remain blind to the crime.”

When an adult child has been put in charge, Foley notes, that’s often who is informed when there’s a suspicion of theft.”If the adult child is the one managing the parents’ finances they’ll simply be told that someone is stealing their parent’s identity and they already knew that,” she says.

Recent sell-off sets up next gold rally

The following is a guest post by Lawrence Carrel, author of “ETFs for the Long Run” and “Dividend Stocks for Dummies.” The opinions expressed are his own.  Full disclosure: The author has had 7 percent of his personal retirement account in a gold ETF for the past four years.

When the price of gold plunged 20 percent last month, many market watchers declared the gold boom over. Stalled, yes; ended, no, according to many gold analysts, who believe the precious metal may instead be near a new sustained rally.

“I can tell investors don’t sell off your gold,” says Martin Murenbeeld, the chief economist at DundeeWealth. “We’re at a crossroads here.”

During the summer, gold surged 29 percent to a record high of $1,920 a troy ounce. This jump caused the price to drastically detach from its 200-day moving average, an important trend line in technical analysis that the gold price had closely hugged for much of the last decade. Technical analysts considered this jump unsustainable and in September gold gave back most of these gains.

Gold fell to a low of $1,534.49, much to the technicians delight, and it bounced off the 200-day moving average’s support level of $1,527.  While most gold watchers expect the metal to experience turbulence during the next few months, the world hasn’t changed much, and gold prices may climb higher because of its status as a safe-haven during turbulent times.

“Have the countries around the world solved the debt crisis?” asks Nick Barisheff, president of Bullion Management Group, a precious metals investment company based in Toronto. “Have the bailouts ended? Have their currencies stopped tanking?“ With the world already worried about Greece’s fiscal problems, gold summer’s rally was sparked by fears that the U.S. might default on its debt.

After Standard & Poor’s downgraded the U.S. debt, investors flocked to gold as one of the few safe havens left. This raised the specter of recession, which is never good for gold. The combination of increased collateral requirements for trading with falling commodity and stock markets, gold tumbled as investors sold it for liquidity amidst a flurry of margin calls.