Third-quarter results lifted by strong growth as manufacturer lifts full-year profit outlook.
ST. PAUL, Minn. (AP) -- Scotch tape and Post-it Notes maker 3M Co. said Friday its third-quarter earnings climbed 7 percent on strong growth across all regions, though sales fell shy of expectations.
The company also raised its profit outlook for the full year.
Net income grew to $960 million, or $1.32 per share, from $894 million, or $1.18, in the third quarter of 2006. Excluding gains in both periods, the company earned $1.29 in the latest quarter, up from $1.17 a year ago.
Revenue rose nearly 6 percent to $6.18 billion from $5.86 billion a year ago.
Analysts surveyed by Thomson Financial expected a profit of $1.28 per share on higher revenue of $6.29 billion.
3M (Charts, Fortune 500) raised its outlook for 2007 earnings for the second time, forecasting a profit of $5.54 to $5.62 per share, up from a prior estimate of $5.40 to $5.60.
The new guidance includes a gain of 60 to 65 cents per share to account for the completed sale of its branded pharmaceuticals business in Europe.
Wall Street is expecting earnings per share of $4.97 for fiscal 2007.
Friday, October 19, 2007
Despite slow sales, 3M's earnings up 7%
McDonald's profit meets estimates
Fast-food chain's third-quarter income boosted by a sales surge in its international markets, new menu offerings.
NEW YORK (CNNMoney.com) -- McDonald's Corp. posted a third-quarter profit Friday that met Wall Street estimates, helped by a sales boost in its overseas markets and new menu items, including breakfast offerings and sandwiches.
McDonald's (Charts, Fortune 500), the world's largest fast-food chain, said third-quarter profit rose to $1.07 billion, or 89 cents a share, from $843.3 million, or 68 cents, a year earlier.
But excluding a gain from the sale of its Boston Market unit, earnings came in at 83 cents, in line with analysts' forecasts. Revenue came in at $5.9 billion, slightly below expectations.
Analysts, on average, had forecast a profit of 83 cents on sales of $6 billion, according to Thomson Financial.
The company said sales at its restaurants open at least a year, also known as same-store sales, jumped 11.4 percent in the Asia/Pacific, Middle East and Africa group, the highest quarterly performance in that regional combination in 10 years.
Its global same-store sales rose 6.9 percent in the quarter, marking the fast-food chain's seventh consecutive quarter of same-store sales gains.
McDonald's did not break out its same-store sales in its key U.S. market but said in a statement that its domestic operations "generated strong operating income growth despite industry-wide commodity and labor headwinds."
McDonald's is expected to hold a conference call with analysts Friday to discuss its results
NEW YORK (CNNMoney.com) -- McDonald's Corp. posted a third-quarter profit Friday that met Wall Street estimates, helped by a sales boost in its overseas markets and new menu items, including breakfast offerings and sandwiches.
McDonald's (Charts, Fortune 500), the world's largest fast-food chain, said third-quarter profit rose to $1.07 billion, or 89 cents a share, from $843.3 million, or 68 cents, a year earlier.But excluding a gain from the sale of its Boston Market unit, earnings came in at 83 cents, in line with analysts' forecasts. Revenue came in at $5.9 billion, slightly below expectations.
Analysts, on average, had forecast a profit of 83 cents on sales of $6 billion, according to Thomson Financial.
The company said sales at its restaurants open at least a year, also known as same-store sales, jumped 11.4 percent in the Asia/Pacific, Middle East and Africa group, the highest quarterly performance in that regional combination in 10 years.
Its global same-store sales rose 6.9 percent in the quarter, marking the fast-food chain's seventh consecutive quarter of same-store sales gains.
McDonald's did not break out its same-store sales in its key U.S. market but said in a statement that its domestic operations "generated strong operating income growth despite industry-wide commodity and labor headwinds."
McDonald's is expected to hold a conference call with analysts Friday to discuss its results
$90 oil won't kill the bull
The economy is more resilient than during past oil-price spikes. And there are some great stock values.
By Michael Sivy, Money Magazine editor at large
(Money Magazine) -- As the price of crude oil broke $90 a barrel for the first time, investors worried that stocks were headed for a major downturn. But the odds are high that the bull market will survive.First, though, let's face up to the bad news. The current oil price is high enough to threaten the economy. During the oil crisis of the late 1970s and early 1980s, the price of a barrel of crude peaked at between $75 and $80 in today's dollars. So we're well past that now.
In coming years, the oil price is likely to stay relatively high. After the last oil crisis ended, oil plummeted to less than $20 a barrel (in today's dollars) several times between 1986 and 1998. But when the current squeeze finally eases, we'll be lucky if oil dips below $50.
The problem is that all the cheap oil is being used up. Supplies can't be increased very fast, and new production is expensive.
Plus, globalization is producing phenomenal growth in China and other emerging countries, which are far thirstier for additional oil than more mature economies in the United States and Europe.
A lot of investors look at the prospect of permanently expensive oil and conclude that a replay of 1970s stagflation is inevitable, to be followed by something like the killer recession of 1982-83.
But here's some good news.
The resilient economy
For starters, oil plays a smaller role in modern economies than it used to. Today, it takes about one-quarter as much energy for an additional unit of GDP as it took in the 1970s.
In fact, the economy seems to be shrugging off today's expensive oil. Earnings will be lousy for the quarter that just ended, but that's largely because of the subprime mortgage crisis. Moreover, forecasters project a return to double-digit earnings growth by year-end.
There's also the risk of inflation - there's no question that high oil prices put upward pressure on the cost of other goods. But so far, there's little evidence of big price increases. And globalization trends - competition, outsourcing and cheaper foreign labor costs - help keep a lid on inflation.
To some extent, peaking oil prices are the result of a weak dollar. Oil doesn't look nearly as expensive in euros, which are now worth 50 percent more than European currencies in 1981. So energy prices are less of a drag on economies outside the United States, which should help support growth in this country.
In a sense the current situation is self-correcting. If the U.S. economy weakened for any length of time, growth would slacken in China's export-oriented economy, which would reduce the total world demand for oil.
The real danger is military conflict of some sort that disrupts the supply of Middle Eastern oil for a protracted period. That can't be ignored. But we can gauge the chances of these risks. Some disruption of Middle Eastern oil supplies has already occurred and the risk of further problems is already reflected in stock prices.
There's a rule of thumb that the price/earnings ratio of the S&P 500, based on earnings for the coming year, should be 20 minus the inflation rate. With the consumer price index up 2.8 percent over the past 12 months, the market P/E should be over 17. But many top growth stocks are trading for less.
Smart investment moves now - and later
Your best investment strategy now is to recognize that there is a small but real risk of a bear market. That argues for diversifying as broadly as possible and favoring undervalued stocks and those with high dividends that would receive some support from their yields.
I gave some specific suggestions in "Profiting from subprime turmoil."
As for energy stocks, this is not the best time to buy them. An improvement in the global political situation or even a small slackening of demand, could force oil prices back down - as well as the stocks of major energy companies.
But at some point, certainly whenever the next recession does arrive, oil will pull back a lot. Then, you should make sure to add first-class energy stocks to your portfolio, including ExxonMobil (Charts, Fortune 500) and ConocoPhillips (Charts, Fortune 500).
Anadarko Petroleum (Charts, Fortune 500) and Apache (Charts, Fortune 500) are also interesting because they are producers with reserves mostly in politically stable regions, such as North America. The more-speculative stock to buy the next time oil prices retreat is Schlumberger (Charts), the leading oilfield services company. Its share price is up 92 percent over the past year.
Long-term, of course, it's essential for investors to include energy stocks in their portfolios, or to rely on an inflation-hedge mutual fund like T. Rowe Price New Era.
The damage done to your purchasing power over decades by even moderate inflation will always be the greatest threat to your financial well-being.
It's also the threat that investors are typically least prepared for. So keep an eye on the energy stocks. This may not be the moment to buy them, but they're a must for your portfolio when the time is right to scoop them up.
Thursday, October 18, 2007
EBay swings to loss on Skype charges
By Dan Gallagher, MarketWatch
NEW YORK (MarketWatch) -- EBay Inc. swung to a loss in the third quarter due to a large write-off of its investment into Internet telephony carrier Skype, but results excluding the charge came in well above Wall Street's estimates.
The online auction giant (EBAY:40.60, +2.00, +5.2%) also saw an uptick in its
core business as listings improved. In addition, EBay issued a better-than-expected forecast for the current period.
Shares of eBay fell in premarket trading, down more than 3% to $39.25. On Wednesday, the stock jumped more than 5% to close at $40.60 before the report was issued. EBay has gained about 20% in the past six weeks.
During a conference call with analysts, eBay executives outlined plans to step up spending in the next year. The company said it will "continue to invest in significant enhancements to the buyer experience" in the hopes of drawing more customers to the site.
"It's important to note that these investments will all go right to our users in the form of a better experience, better support, and better pricing strategies designed to maximize value for our sellers," CEO Meg Whitman said on the call.
Earnings beat estimates
For the quarter ended Sept. 30, eBay reported a net loss of $935.6 million, or 69 cents a share, compared with earnings of $280.9 million, or 20 cents a share, for the same period last year.
The results include a previously disclosed charge of $1.39 billion related to the company's acquisition of Skype, a provider of voice-over-IP, or VOIP, telephone services that was taken over by eBay in September of 2005. Also included are charges related to stock-option compensation and other items.
Excluding the charges, eBay said earnings would have been $564 million, or 41 cents per share, for the quarter. Analysts were expecting earnings of 33 cents a share, according to consensus estimates from Thomson First Call.
Revenue grew 30% to $1.89 billion for the quarter from $1.45 billion last year. Analysts had expected revenue of $1.83 billion for the period.
The company saw an uptick in gross merchandise volume (GMV), which grew 14% from last year's third quarter. This was an improvement from the second quarter, which saw the GMV-growth-rate hit a low point of 12%.
Still, the GMV figure represented a decline from last year's third quarter, when listings grew 17%.
"The second and third quarters are generally slower quarters," said eBay CFO Bob Swan in an interview. "In this quarter, we saw an acceleration primarily driven by our international markets, Germany in particular. Improvement in average selling prices is also a key indicator of health in the market."
The company's PayPal unit saw revenue of $470 million for the quarter, up 35% from last year. Revenues at Skype totaled $98 million, up 96% from last year. The service had 246 million registered users by the end of the period.
Cash and equivalents totaled $4.4 billion at the end of the third quarter.
A mixed outlook
The company's outlook was also ahead of expectations. EBay expects earnings for the fourth quarter to come in between 39 cents and 41 cents a share, with revenue between $2.1 billion and $2.15 billion.
Analysts were expecting earnings of 38 cents a share on revenue of $2.06 billion.
However, the company may see its profitability get pinched next year as it steps up investments to improve its core business. That, coupled with the fact that its faster-growing businesses at PayPal and Skype offer lower profit margins, could put pressure on the bottom line for the year.
"We'll also face some operating margin headwinds entering 2008 as the competitive environment continues to intensify and our investments in growth opportunities accelerate," Swan said on the call.
Tim Boyd of American Technology Research, who has a buy rating on the stock, called the results a "clean beat and raise quarter" and predicted the stock could hit the $50 mark by the end of the year.
"It's not an Amazonian blowout, but very impressive [results] across the board," Boyd said in an interview.
Steve Weinstein of Pacific Crest, who also rates the stock as a buy, said the fact that GMV was up is a positive for the company.
"It's a little better than we thought they would do," said Weinstein. "They're showing an improving trend there, but we need to dig into the numbers a little bit more."
NEW YORK (MarketWatch) -- EBay Inc. swung to a loss in the third quarter due to a large write-off of its investment into Internet telephony carrier Skype, but results excluding the charge came in well above Wall Street's estimates.
The online auction giant (EBAY:40.60, +2.00, +5.2%) also saw an uptick in its
core business as listings improved. In addition, EBay issued a better-than-expected forecast for the current period.
Shares of eBay fell in premarket trading, down more than 3% to $39.25. On Wednesday, the stock jumped more than 5% to close at $40.60 before the report was issued. EBay has gained about 20% in the past six weeks.
During a conference call with analysts, eBay executives outlined plans to step up spending in the next year. The company said it will "continue to invest in significant enhancements to the buyer experience" in the hopes of drawing more customers to the site.
"It's important to note that these investments will all go right to our users in the form of a better experience, better support, and better pricing strategies designed to maximize value for our sellers," CEO Meg Whitman said on the call.
Earnings beat estimates
For the quarter ended Sept. 30, eBay reported a net loss of $935.6 million, or 69 cents a share, compared with earnings of $280.9 million, or 20 cents a share, for the same period last year.
The results include a previously disclosed charge of $1.39 billion related to the company's acquisition of Skype, a provider of voice-over-IP, or VOIP, telephone services that was taken over by eBay in September of 2005. Also included are charges related to stock-option compensation and other items.
Excluding the charges, eBay said earnings would have been $564 million, or 41 cents per share, for the quarter. Analysts were expecting earnings of 33 cents a share, according to consensus estimates from Thomson First Call.
Revenue grew 30% to $1.89 billion for the quarter from $1.45 billion last year. Analysts had expected revenue of $1.83 billion for the period.
The company saw an uptick in gross merchandise volume (GMV), which grew 14% from last year's third quarter. This was an improvement from the second quarter, which saw the GMV-growth-rate hit a low point of 12%.
Still, the GMV figure represented a decline from last year's third quarter, when listings grew 17%.
"The second and third quarters are generally slower quarters," said eBay CFO Bob Swan in an interview. "In this quarter, we saw an acceleration primarily driven by our international markets, Germany in particular. Improvement in average selling prices is also a key indicator of health in the market."
The company's PayPal unit saw revenue of $470 million for the quarter, up 35% from last year. Revenues at Skype totaled $98 million, up 96% from last year. The service had 246 million registered users by the end of the period.
Cash and equivalents totaled $4.4 billion at the end of the third quarter.
A mixed outlook
The company's outlook was also ahead of expectations. EBay expects earnings for the fourth quarter to come in between 39 cents and 41 cents a share, with revenue between $2.1 billion and $2.15 billion.
Analysts were expecting earnings of 38 cents a share on revenue of $2.06 billion.
However, the company may see its profitability get pinched next year as it steps up investments to improve its core business. That, coupled with the fact that its faster-growing businesses at PayPal and Skype offer lower profit margins, could put pressure on the bottom line for the year.
"We'll also face some operating margin headwinds entering 2008 as the competitive environment continues to intensify and our investments in growth opportunities accelerate," Swan said on the call.
Tim Boyd of American Technology Research, who has a buy rating on the stock, called the results a "clean beat and raise quarter" and predicted the stock could hit the $50 mark by the end of the year.
"It's not an Amazonian blowout, but very impressive [results] across the board," Boyd said in an interview.
Steve Weinstein of Pacific Crest, who also rates the stock as a buy, said the fact that GMV was up is a positive for the company.
"It's a little better than we thought they would do," said Weinstein. "They're showing an improving trend there, but we need to dig into the numbers a little bit more."
DynTek Announces Unified Communications Integration Service for Microsoft Office Communicator 2007
IRVINE, Calif., Oct. 18 /PRNewswire-FirstCall/ -- DynTek, Inc. , a leading provider of professional technology solutions and a Microsoft Gold Certified Partner, today announced that it now offers a Unified Communications Integration Service, which is centered around Microsoft Office Communicator 2007 to streamline IT and business processes, lower operational costs, enhance customer support and foster a more productive environment.
"Microsoft clearly has experience in the desktop interface market and we believe that voice and video communications are a logical extension of the desktop, said Steve Struthers, Chief Technology Officer, DynTek. " Therefore, we are excited about working with Microsoft Office Communicator 2007 and the benefits it will bring to our customer base."
"DynTek's services help customers implement Microsoft's Office Communicator 2007, giving them significant communications benefits," said Tim Stumbles, Voice Partner Account Manager. "Microsoft is excited to work with DynTek to improve our customers' experience and help foster better collaboration and productivity."
About DynTek
DynTek is a leading provider of professional technology services to mid- market companies, such as state and local governments, educational institutions and commercial entities in the largest IT markets nationwide. The company provides a broad range of IT security, unified communication, virtualization, Microsoft Information Worker, and application infrastructure and delivery solutions. DynTek's multidisciplinary approach allows our clients to turn to a single source for their most critical technology requirements. For more information, visit www.dyntek.com.
All product and company names herein may be trademarks of their respective owners.
This press release contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. Investors are cautioned that certain statements in this release are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and involve known and unknown risks, uncertainties and other factors. Such uncertainties and risks include, among others, success in reaching target markets for services and products in a highly competitive market and the ability to maintain existing and attract future customers; our ability to finance and sustain operations, including our ability to comply with the terms of working capital facilities and/or other term indebtedness of the Company, and to extend such obligations when they become due, or to replace them with alternative financing; our ability to raise equity capital in the future; our ability to achieve profitability despite historical losses from operations; our ability to maintain business relationships with IT product vendors and our ability to procure products as necessary; the size and timing of additional significant orders and their fulfillment; the continuing desire of and available budgets for state and local governments to outsource to private contractors; our ability to successfully identify and integrate acquisitions; the retention of skilled professional staff and certain key executives; the performance of the Company's government and commercial technology services; the continuation of general economic and business conditions that are conducive to outsourcing of IT services; our ability to maintain trading on the NASD OTC Bulletin Board or other markets in the future; and such other risks and uncertainties included in our Annual Report on Form 10-K filed on October 12, 2007, our Quarterly Reports on Form 10-Q filed on November 20, 2006, February 20, 2007 and May 21, 2007 and other SEC filings. The Company has no obligation to publicly revise any forward-looking statements to reflect anticipated or unanticipated events or circumstances occurring after the date of such statements.
"Microsoft clearly has experience in the desktop interface market and we believe that voice and video communications are a logical extension of the desktop, said Steve Struthers, Chief Technology Officer, DynTek. " Therefore, we are excited about working with Microsoft Office Communicator 2007 and the benefits it will bring to our customer base."
"DynTek's services help customers implement Microsoft's Office Communicator 2007, giving them significant communications benefits," said Tim Stumbles, Voice Partner Account Manager. "Microsoft is excited to work with DynTek to improve our customers' experience and help foster better collaboration and productivity."
About DynTek
DynTek is a leading provider of professional technology services to mid- market companies, such as state and local governments, educational institutions and commercial entities in the largest IT markets nationwide. The company provides a broad range of IT security, unified communication, virtualization, Microsoft Information Worker, and application infrastructure and delivery solutions. DynTek's multidisciplinary approach allows our clients to turn to a single source for their most critical technology requirements. For more information, visit www.dyntek.com.
All product and company names herein may be trademarks of their respective owners.
This press release contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. Investors are cautioned that certain statements in this release are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and involve known and unknown risks, uncertainties and other factors. Such uncertainties and risks include, among others, success in reaching target markets for services and products in a highly competitive market and the ability to maintain existing and attract future customers; our ability to finance and sustain operations, including our ability to comply with the terms of working capital facilities and/or other term indebtedness of the Company, and to extend such obligations when they become due, or to replace them with alternative financing; our ability to raise equity capital in the future; our ability to achieve profitability despite historical losses from operations; our ability to maintain business relationships with IT product vendors and our ability to procure products as necessary; the size and timing of additional significant orders and their fulfillment; the continuing desire of and available budgets for state and local governments to outsource to private contractors; our ability to successfully identify and integrate acquisitions; the retention of skilled professional staff and certain key executives; the performance of the Company's government and commercial technology services; the continuation of general economic and business conditions that are conducive to outsourcing of IT services; our ability to maintain trading on the NASD OTC Bulletin Board or other markets in the future; and such other risks and uncertainties included in our Annual Report on Form 10-K filed on October 12, 2007, our Quarterly Reports on Form 10-Q filed on November 20, 2006, February 20, 2007 and May 21, 2007 and other SEC filings. The Company has no obligation to publicly revise any forward-looking statements to reflect anticipated or unanticipated events or circumstances occurring after the date of such statements.
World's Most Expensive Homes 2007
by Matt Woolsey
Along Australia's Gold Coast and across the French Riviera, they sit above the beach offering extraordinary views of the sea. In the U.K. they are palaces that humble the Queen's Belgravia mansions.
Others range from landed estates throughout continental Europe to nature preserves in Zambia.
These are some of the world's most expensive properties, and the prices are as unique as the homes. Saudi Prince Bandar bin Sultan's Aspen ski lodge lists for $135 million, while 6,000 miles away, a 64-room Istanbul waterfront mansion asks $100 million.
"You're definitely talking about the highest end of the market here," says Joshua Saslove of Joshua & Co., an Aspen, Colo.-based affiliate of Christie's Great Estates. "The net worth of the buyers and the sellers is such that they can do whatever they want."
Feeling a little less flush? A modest $18 million will get you South Africa's priciest pad. But you'd better act quick; with international real estate company Knight Frank calling the country one of the quickest growing real estate markets, that affordability could soon change.
For something a little more "Old World," a Romanian castle, built in 1212 and once home to Vlad the Impaler (the inspiration for Count Dracula), can be had for $140 million.
Buyers' Bios
Whether they're plunking down $20 million or close to $200 million, in Hong Kong, New York or Rio de Janeiro, potential buyers are generally cut from the same cloth.
They are wealthy globetrotters looking for a second, third or fourth home, and don't mind gassing up the jet if it means owning a beautiful property. Americans, Arabs and Europeans have long bought getaways across the globe, but increasingly the rising wealth in China, India and Russia is raising the world's luxury watermark.
And while no one besides Indian steel tycoon Lakshmi Mittal has ever shelled out more than $100 million for a home (he did so in 2005, when he snapped up a Kensington townhouse for $127 million ), there are plenty available.
Dream Homes
Though it hasn't yet been built, Tim Blixseth is asking $155 million for his planned Montana lodge. He says that several members of the Forbes 400 have already expressed interest in what will be a 53,000-square-foot stone-and-wood mansion in the billionaire's members-only Yellowstone Club.
But until Blixseth finishes construction in 2008, this year's top property can be found in Beverly Hills, Calif. For $165 million, a buyer gets a 75,000-square-foot villa once owned by William Randolph Hearst.
Dishing The Data
For the third consecutive year, Forbes.com compiled lists of the world's most valuable properties on the market in every continent, excluding Antarctica. We scoured international real estate listings and spoke to top brokers around the world, restricting our list to homes and apartments, not including apartment buildings or plots of land. We allowed for some commercial properties such as ranches or vineyards, but only if the property also featured a residence worthy of the list.
Still, discovering every top-tier property is impossible. Many owners sell their homes only to preselected buyers, and hide their asking and sales prices. This can help owners conceal the value of a home for tax purposes, and keeps fellow aristocrats from regarding them as gauche for announcing a $100 million property to the world.
In France, for example, this year's highest listing is $65 million for an elegant Cote d'Azur gem perched above the port of Saint Jean, with views of Beaulieu and Monaco.
But real estate agents say there are many more available on the sly.
"We have chateaux priced at more than 50 million euros ($65 million)," says Thierry Journiac of Terra Cognita who said owners of the country's priciest properties very rarely make public listings. "But, in general, the most expensive estates in France are private mansions inside Paris called 'hotels particuliers' with prices which can be above 100 million euros ($130 million)."
Since the top flight market is so cost-prohibitive, factors such as mortgage, appraisal and vacancy rates, as well as moving expenses and market fluctuations, have little-to-no effect on high-end buyers or sellers.
"[Properties] might be sold within a week or stay on the market much longer," says Journiac. "This is because their owners do not really need money and so do not want to discuss the price much."
Donald Trump, for example, bought his Palm Beach mansion three years ago for just over $40 million and, after extensive refurbishing, placed it back on the market at $125 million, a price from which "the Donald" says he will not budge.
For real estate agents, selling homes valued at over $10 million is a very specialized trade and most brokers in the game hold only a handful of such listings at a time. An occasional sale of a top-flight property brings a larger financial boom than regular sales of median-priced properties.
"Considering the sales volume, the high-end market can be slower," says Patricia Judice de Araujo Esteves, at Judice & Araujo, the Brazilian affiliate of Christie's Great Estates. "But it is more profitable, not only for us, but also for the owners."
Ripe Market
If 2007's listing prices are any indication, the highest-end market has room to grow. When we started the list in 2005, Trump's Palm Beach mansion was the only American property listed above $100 million--there are now three--and outshined second place by $50 million. Now, similarly sized houses listed at $75 million represent an absolute steal.
When the Three Ponds estate in Bridgehampton first listed at $75 million three years ago, it towered over the rest of the market. Now, people are buying teardowns in the Hamptons for $35 million to $40 million, say real estate agents there. Three Ponds is located on over 60 acres of prime real estate and also features its own USGA-rated Rees Jones golf course, 14 gardens, a 75-foot-long swimming pool and guest house. It has the rare distinction of being both the Hampton's most expensive property and the most pound-for-pound valuable property.
"For $75 million you actually get something for your money, which is rare in the Hamptons," says Susan Breitenbach, the Corcoran listing agent. "That price is no longer a crazy number, like people first said it was."
Others range from landed estates throughout continental Europe to nature preserves in Zambia.
These are some of the world's most expensive properties, and the prices are as unique as the homes. Saudi Prince Bandar bin Sultan's Aspen ski lodge lists for $135 million, while 6,000 miles away, a 64-room Istanbul waterfront mansion asks $100 million.
"You're definitely talking about the highest end of the market here," says Joshua Saslove of Joshua & Co., an Aspen, Colo.-based affiliate of Christie's Great Estates. "The net worth of the buyers and the sellers is such that they can do whatever they want."Feeling a little less flush? A modest $18 million will get you South Africa's priciest pad. But you'd better act quick; with international real estate company Knight Frank calling the country one of the quickest growing real estate markets, that affordability could soon change.
For something a little more "Old World," a Romanian castle, built in 1212 and once home to Vlad the Impaler (the inspiration for Count Dracula), can be had for $140 million.
Buyers' Bios
Whether they're plunking down $20 million or close to $200 million, in Hong Kong, New York or Rio de Janeiro, potential buyers are generally cut from the same cloth.
They are wealthy globetrotters looking for a second, third or fourth home, and don't mind gassing up the jet if it means owning a beautiful property. Americans, Arabs and Europeans have long bought getaways across the globe, but increasingly the rising wealth in China, India and Russia is raising the world's luxury watermark.
And while no one besides Indian steel tycoon Lakshmi Mittal has ever shelled out more than $100 million for a home (he did so in 2005, when he snapped up a Kensington townhouse for $127 million ), there are plenty available.
Dream Homes
Though it hasn't yet been built, Tim Blixseth is asking $155 million for his planned Montana lodge. He says that several members of the Forbes 400 have already expressed interest in what will be a 53,000-square-foot stone-and-wood mansion in the billionaire's members-only Yellowstone Club.
But until Blixseth finishes construction in 2008, this year's top property can be found in Beverly Hills, Calif. For $165 million, a buyer gets a 75,000-square-foot villa once owned by William Randolph Hearst.
Dishing The Data
For the third consecutive year, Forbes.com compiled lists of the world's most valuable properties on the market in every continent, excluding Antarctica. We scoured international real estate listings and spoke to top brokers around the world, restricting our list to homes and apartments, not including apartment buildings or plots of land. We allowed for some commercial properties such as ranches or vineyards, but only if the property also featured a residence worthy of the list.
Still, discovering every top-tier property is impossible. Many owners sell their homes only to preselected buyers, and hide their asking and sales prices. This can help owners conceal the value of a home for tax purposes, and keeps fellow aristocrats from regarding them as gauche for announcing a $100 million property to the world.
In France, for example, this year's highest listing is $65 million for an elegant Cote d'Azur gem perched above the port of Saint Jean, with views of Beaulieu and Monaco.
But real estate agents say there are many more available on the sly.
"We have chateaux priced at more than 50 million euros ($65 million)," says Thierry Journiac of Terra Cognita who said owners of the country's priciest properties very rarely make public listings. "But, in general, the most expensive estates in France are private mansions inside Paris called 'hotels particuliers' with prices which can be above 100 million euros ($130 million)."
Since the top flight market is so cost-prohibitive, factors such as mortgage, appraisal and vacancy rates, as well as moving expenses and market fluctuations, have little-to-no effect on high-end buyers or sellers.
"[Properties] might be sold within a week or stay on the market much longer," says Journiac. "This is because their owners do not really need money and so do not want to discuss the price much."
Donald Trump, for example, bought his Palm Beach mansion three years ago for just over $40 million and, after extensive refurbishing, placed it back on the market at $125 million, a price from which "the Donald" says he will not budge.
For real estate agents, selling homes valued at over $10 million is a very specialized trade and most brokers in the game hold only a handful of such listings at a time. An occasional sale of a top-flight property brings a larger financial boom than regular sales of median-priced properties.
"Considering the sales volume, the high-end market can be slower," says Patricia Judice de Araujo Esteves, at Judice & Araujo, the Brazilian affiliate of Christie's Great Estates. "But it is more profitable, not only for us, but also for the owners."
Ripe Market
If 2007's listing prices are any indication, the highest-end market has room to grow. When we started the list in 2005, Trump's Palm Beach mansion was the only American property listed above $100 million--there are now three--and outshined second place by $50 million. Now, similarly sized houses listed at $75 million represent an absolute steal.
When the Three Ponds estate in Bridgehampton first listed at $75 million three years ago, it towered over the rest of the market. Now, people are buying teardowns in the Hamptons for $35 million to $40 million, say real estate agents there. Three Ponds is located on over 60 acres of prime real estate and also features its own USGA-rated Rees Jones golf course, 14 gardens, a 75-foot-long swimming pool and guest house. It has the rare distinction of being both the Hampton's most expensive property and the most pound-for-pound valuable property.
"For $75 million you actually get something for your money, which is rare in the Hamptons," says Susan Breitenbach, the Corcoran listing agent. "That price is no longer a crazy number, like people first said it was."
Copyrighted, Forbes.com. All rights reserved.
Thirteen Retirement Myths
by Penelope Wang
1. Myth: You need a big income to have a big nest egg
With planning, discipline and a little ingenuity, Bill Scott has built up retirement savings and real estate equity worth about $800,000 over the past 20 years. At the same time, the Alexandria, Va. single father hasn't neglected college funding for his eight- and 12-year-old daughters - both have 529 accounts worth $25,000.
How did he do it? When he joined the Marines after two years of college, Scott started saving $100 a month for education, thinking he'd eventually return to civilian life and finish school. He ended up staying in the Marines, but he didn't stop saving. "I never missed the extra money because I never let myself have it," Scott says. "As I had more, I increased the amount I saved."
Still, Scott feared that a master sergeant's pension and a small nest egg weren't enough to retire on. So seven years ago, he started buying properties to rehab and rent out. He's now pulling in around $5,000 a month in rent. Being a landlord on the side isn't for everyone, but it's helped Scott fund his retirement-- and his daughters' education. "You have to be creative," Scott says. "The biggest thing is to have a realistic goal and then find out how to achieve it."
2. Myth: You can't get rich with a 401(k)
When Tim O'Friel graduated from college, his brother gave him sage advice: Put as much as you can in a 401(k) and don't touch it. O'Friel took that to heart, saving 15% of his salary until he reached the IRS max ($15,500 in 2007). After 13 years of steady contributions, O'Friel, a contract negotiator for a manufacturing company in Thousand Oaks, Calif., has a 401(k) worth more than $200,000.
"It's not play money," he says. "I'm not trying to beat the market." O'Friel's hands-off approach became even easier a few years ago when Fidelity, his 401(k) administrator, started offering target-date retirement funds. He jumped at the chance to let professional managers keep an eye on his portfolio. O'Friel put all his money in Fidelity Freedom 2030, the fund that's geared to the year he plans to retire. He's confident in the fund's asset allocation - currently 83% in stocks, 17% in bonds - and he's happy not to have to consider it.
"I need my investments to be as safe as they need to be and as risky as is appropriate," O'Friel says. "And I do my best not to think about it."
3. Myth: Everyone has debt
Mary and Martin Pearsall have lived frugally, saved regularly and invested wisely in their 30 years of marriage. They've also managed to avoid the kind of crippling debt that can spoil the best-laid retirement plans. They steered clear of credit cards by living within their means, and they've dutifully paid the mortgage on their $250,000 Colorado Springs house. They now owe just $64,000.
"We've been careful without being draconian," Martin says. "We would never accumulate debt we couldn't handle."
Martin worked as an Episcopal priest until last year, and Mary has been a personal trainer and a business consultant. Now, with the help of a sizable inheritance from Martin's mother, they have a portfolio worth over $1 million. With no major debt to hold them back, the Pearsalls plan to scale back their work lives soon and travel, as they've been hoping to do for ages.
"I want to be disencumbered from having to be somewhere," says Mary.
For most people, during a time of economic growth and soaring markets, it's easy to believe that income will keep rising faster than debt payments. But in retirement you can no longer count on that unlimited potential for better pay. If you don't cut your debt load while you're still working, says Marilyn Dimitroff, a financial adviser in Bloomfield Hills, Mich., you will face the worst possible scenario: a retirement saddled with mounting debt and only a limited income to repay it.
4. Myth: A million dollars will cover you
A million dollars has long been the retirement portfolio gold standard, and why not? That's a rich sum. But let's get the bad news out of the way quickly. If you earn six figures and have no intention of living on an austerity budget when you stop working, you may need far more than $1 million to support yourself for the rest of your life.
The reason $1 million isn't all it was once cracked up to be: As a rule of thumb, you should plan to withdraw no more than 4% of your portfolio in your first year of retirement - otherwise you risk running out of money too soon.
You can nudge up your withdrawals slightly each year for inflation. So if you want an annual income of $80,000 - the retirement inflow needed to maintain the lifestyle of a worker earning $100,000 - and you and your spouse will collect $20,000 or so a year in Social Security benefits, $60,000 will have to come from your own savings. At a 4% withdrawal rate, that works out to a nest egg of roughly $1.5 million.
Of course, that's just a ballpark figure. With a pension or part-time work or more modest expectations, you can get by with much less than seven figures. The only number that really counts is the number you personally need to save based on your goals and resources. So start figuring.
Update these calculations every few years or whenever you have a major lifestyle upgrade. As you draw closer to the finish line, this exercise will give you an increasingly accurate picture of your target, million dollars or not.
5. Myth: Boomers will crash the market
Cross a stock market Armageddon off your list of fears. No question, the retirement of tens of millions of boomers in the coming decades will have a major impact on everything from health care (count on surging demand) to real estate (good-bye, suburbs, hello, beach house). And, the thinking goes, the generation that loaded up on stocks as they saved for retirement will crash the market once they sell those shares to pay for retirement.
Here's why that's not true.
Stock ownership is extremely concentrated among the very highest income brackets - those in the top 10% hold 68% of financial assets, according to a 2006 study by the Government Accountability Office. These wealthy investors are unlikely to be so strapped for cash that they have to sell their shares in a hurry. Instead, says George Walper, co-author of "Get Rich, Stay Rich, Pass It On," most affluent families intend to preserve assets for their heirs. Moreover, many baby boomers plan to stay in the work force longer than an earlier generation did, even into retirement, which would further reduce the need to sell shares abruptly.
6. Myth: Without a pension, you're doomed
It's true that baby boomers will get far less financial help from pensions than their parents did. Seeking to cut the cost of providing retirement benefits, more and more companies are dropping or freezing their traditional plans - the ones that your boss paid for, the ones that gave you a guaranteed monthly income for the rest of your life - leaving you with retirement accounts like 401(k)s that you have to fund and manage.
In 2005 only one in 10 private-sector employees was covered solely by a defined-benefit plan, compared with 37% in 1985, while the percentage of employees with 401(k) plans jumped to 63% from 28%. Without a pension you lose the prospect of a predictable lifetime paycheck. That's the story, anyway.
But the truth is, the defined-benefit pension was never a fabulous deal for most workers. Because the traditional pension is designed to reward longtime employees, the size of the pension depended in large part on how long you stayed with your employer. So if you switched jobs a few times during your career, as most people do, you lost most of the benefit.
According to the Employee Benefits Research Institute (EBRI), last year the average annual pension payout for those age 65 and older came to just $10,902. When held up against good old pensions, the 401(k) tends to get a bum rap. Because it's portable, a 401(k) allows you to have a normal, 21st-century flexible career and still put away enough to fund a more comfortable retirement. And if it's that "check a month for life" feeling you want, it's a simple matter to convert your 401(k) savings into a pension-like income stream.
7. Myth: Social Security won't be there
Social Security isn't going the way of the LP record soon. Sure, the headlines are alarming. In just 10 years the cost of Social Security benefits will outstrip the amount that workers pay into the system, according to government studies. And by 2041 the Social Security trust fund reserves will run out, unless Washington gets around to addressing the problem.
But that doesn't mean Social Security will shut down. Enough new money will continue to flow into the program from payroll taxes to fund 70% to 75% of scheduled benefits until 2081. Andwith a few reforms, Social Security could continue to pay full benefits. "Compared with theother issues we face, such as financing health care, fixing Social Security is child's play," says Alicia Munnell, head of the Center for Retirement Research at Boston College."You could raise the payroll tax by just one percentage point for both employers and employees, and you would be able to fund full benefits for the next 75 years."
So it's a good bet that you can count on something close to what retirees collect today. The real issue is how big even a full benefit will be. "Most Americans think that Social Security will replace more of their income than it really does," says Dallas Salisbury, president of EBRI.
For the average retiree, Social Security currently covers only 39% of pre-retirement income; and if you earn more than the maximum taxable amount ($97,500 this year), Social Security will replace just 26%, on average, of the income you earned on the job. And those percentages will drop over the next 20 years to 33% and 20%, respectively. That's largely because Medicare Part B premiums, which are deducted from your Social Security check, are increasing at a faster rate than your benefit's annual cost-of-living adjustments.
8. Myth: Your house can finance retirement
Treating your house as the ultimate retirement insurance is an easy trap to fall into. Even with the housing market in the doldrums, the five-year real estate bull market has likely left you feeling house-rich. According to a 2004 study by the National Economic Bureau, upper-income boomers ages 51 to 56 have a third of their net worth invested in their principal residence.
As recently as May, a survey of affluent boomers by financial adviser Bell Investments Advisors found that nearly 70% were relying on their homes as a retirement asset. Question is, will the strategy work? The answer is, not that well.
Why? Because it's hard to eat out on your home equity. You have to live somewhere. To turn your equity into cash, you can sell and then rent, move to a cheaper area or downsize. Most retirees prefer to stay put. Yes, you can do what a small but growing number of retirees are doing: Get a reverse mortgage, which is a loan against the value of your house that you don't have to pay back. (When you die or move out, the loan is paid off by the sale of the house, which means you may not be able to pass the home on to your children.)
But these loans give you much less than the value of your house. For homeowners ages 62 to 69, lenders will typically let you borrow just 49% of your home equity, says Wharton finance professor Nicholas Souleles.
The best way to look at your house is as a place to live, not a retirement account. So in the years leading up to retirement, don't overinvest in it with the idea that you can get that money out later. Keep your mortgage and other housing expenses to no more than 28% of your income, and don't prepay your mortgage instead of saving for retirement.
9. Myth: You're too old to start saving
Okay, it would have been better to start saving early, but let's face it: Most people don't. Still, there's hope for late starters (even those starting at 50). A few years of serious saving can make a huge difference to your quality of life in retirement.
"The first thing you need to do is take a reality pill," says Martha Priddy Patterson, director of employee-benefits analysis at Deloitte Touche. "Figure out what you have and how much you'll need to put away for a decent retirement."
Then launch into savings overdrive - you need to stash away as much as, or more than, someone seeking to retire early. You do have one thing going for you. Anyone over age 50 can also make catch-up contributions of as much as $5,000 to a 401(k) and an additional $1,000 to an IRA.
You might be surprised at how quickly your work can show results. Say you are a 50-year-old earning $100,000 with only $150,000 saved. Research by T. Rowe Price shows that if you put the max in your 401(k), including a catch-up contribution and a 50% match, plus invest another 5% outside the plan, you'll have $1.5 million by age 65, assuming you earn an average of 8% a year. With that, a true retirement will be no myth at all.
10. Myth: Short-term market swings don't matter
It's comforting to look at historical returns. Despite the occasional setback, the market continues to rise over the long run. In any 10-year period since 1926, you'd have made money in stocks 97% of the time; over 20 years you'd be ahead 100% of the time.
As long as you're patient and keep investing, you'll do well, right?
Not necessarily. When you're far from retirement, you can tough out even devastating bear markets, buying low while you do. Once you near your quit date, the rules change. Say you were within a few years of retirement in January 2000, on the eve of the March 2000 to October 2002 meltdown, when stocks plunged 44%.
If you were solely in stocks, it would have taken you 41/2 years just to break even. But if you'd had 60% of your portfolio in stocks, 30% in bonds and 10% in cash, you'd have had far milder losses of 21%. Once you start cashing out, a bear market of that magnitude can seriously jeopardize your standard of living. If youwere a retiree with that same all-stock portfolio in the 2000-02 bear market, those losses would mean you'd have only a 43% chance of seeing your money last until age 85 vs. 80% if you had a more conservative allocation.
11. Myth: Top priority is the kids' college
Unless you expect your children to support you in retirement, stop thinking like an all-nurturing parent. When you have kids, it's only natural to believe that college needs are more pressing than your far more distant retirement. A recent survey by the College Savings Foundation found that 53% of parents consider college savings their top priority, ahead of retirement or a house.
Problem is, this kind of thinking can lead you to pass up a big weapon: the power of compounding over time.
Save $100 a month from age 25 to 35, then stop and let the money grow. You'll have $182,000 in 30 years. Wait until you turn 45 to start saving and you'll have to put away $315 a month for 20 years to end up with the same amount.
Then too, if you come up short when it's time to pay for college, you (and your kids) can get help, from loans to outright grants. You can't apply for a retirement scholarship at age 65. That doesn't mean you should give up entirely on saving for college or other goals. Just make putting away money for retirement your top priority.
As for college, don't assume you have to save enough to pay the full price tag - for most families, a reasonable goal is to save for a third of the costs and make up the rest through financial aid, loans and your income when classes start and the bills roll in.
12. Myth: Decent savings plan = early retirement
Wouldn't it be great to call it a career in your fifties and spend the second half of your life doing whatever you want - with no money worries to get in the way? For many Americans that's the dream. Yet when you consider how much you have to overcome to retire early, that dream looks more like wishful thinking. You need a portfolio big enough to support you for some 30 or 40 years. You won't qualify for Medicare until age 65, and full Social Security benefits don't kick in until at least age 66. The only way to pull off this feat is through prodigious saving - at least a third of your take-home pay.
Still, this isn't a bad myth to strive to make true. With four out of 10 workers forced to leave their jobs sooner than planned because of layoffs or health problems or to care for an ailing relative, according to a McKinsey survey, it's hard to go wrong by saving and investing for the goal of an early exit date. If you choose to work longer, you'll have that much more secure an eventual retirement.
13. Myth: You're bound to mess up your 401(k)
It's true that if you set out to make a colossal mess of your 401(k), no one is going to stop you. You can cash out when you quit or borrow once too often. And now there's no longer a pension sponsor taking responsibility for paying you a certain benefit no matter what; all the investment risk falls to you.
But you're about to get a lot more help if you want it. Last year's Pension Protection Act gave employers the green light to take more responsibility for their workers' retirement savings. Now an increasing number of plans will give you investment advice or even account management. And when you start a job, your plan sponsor may automatically enroll you in the 401(k), raise your contribution level each year and direct your money into diversified investments, such as life-cycle or target-date funds, unless you opt out.
All of which means that even if you never make an independent investing decision, you can nevertheless wind up with a decent portfolio.
Still, you can probably do better with just a little effort. Forstarters, you should try to save the max ($15,500 this year) rather than the 6% or so of salary that many plans set as a default level. And while target funds work well, it's not hard to design a customized mix that suits your goals and risk tolerance.
With planning, discipline and a little ingenuity, Bill Scott has built up retirement savings and real estate equity worth about $800,000 over the past 20 years. At the same time, the Alexandria, Va. single father hasn't neglected college funding for his eight- and 12-year-old daughters - both have 529 accounts worth $25,000.
How did he do it? When he joined the Marines after two years of college, Scott started saving $100 a month for education, thinking he'd eventually return to civilian life and finish school. He ended up staying in the Marines, but he didn't stop saving. "I never missed the extra money because I never let myself have it," Scott says. "As I had more, I increased the amount I saved."Still, Scott feared that a master sergeant's pension and a small nest egg weren't enough to retire on. So seven years ago, he started buying properties to rehab and rent out. He's now pulling in around $5,000 a month in rent. Being a landlord on the side isn't for everyone, but it's helped Scott fund his retirement-- and his daughters' education. "You have to be creative," Scott says. "The biggest thing is to have a realistic goal and then find out how to achieve it."
2. Myth: You can't get rich with a 401(k)
When Tim O'Friel graduated from college, his brother gave him sage advice: Put as much as you can in a 401(k) and don't touch it. O'Friel took that to heart, saving 15% of his salary until he reached the IRS max ($15,500 in 2007). After 13 years of steady contributions, O'Friel, a contract negotiator for a manufacturing company in Thousand Oaks, Calif., has a 401(k) worth more than $200,000.
"It's not play money," he says. "I'm not trying to beat the market." O'Friel's hands-off approach became even easier a few years ago when Fidelity, his 401(k) administrator, started offering target-date retirement funds. He jumped at the chance to let professional managers keep an eye on his portfolio. O'Friel put all his money in Fidelity Freedom 2030, the fund that's geared to the year he plans to retire. He's confident in the fund's asset allocation - currently 83% in stocks, 17% in bonds - and he's happy not to have to consider it.
"I need my investments to be as safe as they need to be and as risky as is appropriate," O'Friel says. "And I do my best not to think about it."
3. Myth: Everyone has debt
Mary and Martin Pearsall have lived frugally, saved regularly and invested wisely in their 30 years of marriage. They've also managed to avoid the kind of crippling debt that can spoil the best-laid retirement plans. They steered clear of credit cards by living within their means, and they've dutifully paid the mortgage on their $250,000 Colorado Springs house. They now owe just $64,000.
"We've been careful without being draconian," Martin says. "We would never accumulate debt we couldn't handle."
Martin worked as an Episcopal priest until last year, and Mary has been a personal trainer and a business consultant. Now, with the help of a sizable inheritance from Martin's mother, they have a portfolio worth over $1 million. With no major debt to hold them back, the Pearsalls plan to scale back their work lives soon and travel, as they've been hoping to do for ages.
"I want to be disencumbered from having to be somewhere," says Mary.
For most people, during a time of economic growth and soaring markets, it's easy to believe that income will keep rising faster than debt payments. But in retirement you can no longer count on that unlimited potential for better pay. If you don't cut your debt load while you're still working, says Marilyn Dimitroff, a financial adviser in Bloomfield Hills, Mich., you will face the worst possible scenario: a retirement saddled with mounting debt and only a limited income to repay it.
4. Myth: A million dollars will cover you
A million dollars has long been the retirement portfolio gold standard, and why not? That's a rich sum. But let's get the bad news out of the way quickly. If you earn six figures and have no intention of living on an austerity budget when you stop working, you may need far more than $1 million to support yourself for the rest of your life.
The reason $1 million isn't all it was once cracked up to be: As a rule of thumb, you should plan to withdraw no more than 4% of your portfolio in your first year of retirement - otherwise you risk running out of money too soon.
You can nudge up your withdrawals slightly each year for inflation. So if you want an annual income of $80,000 - the retirement inflow needed to maintain the lifestyle of a worker earning $100,000 - and you and your spouse will collect $20,000 or so a year in Social Security benefits, $60,000 will have to come from your own savings. At a 4% withdrawal rate, that works out to a nest egg of roughly $1.5 million.
Of course, that's just a ballpark figure. With a pension or part-time work or more modest expectations, you can get by with much less than seven figures. The only number that really counts is the number you personally need to save based on your goals and resources. So start figuring.
Update these calculations every few years or whenever you have a major lifestyle upgrade. As you draw closer to the finish line, this exercise will give you an increasingly accurate picture of your target, million dollars or not.
5. Myth: Boomers will crash the market
Cross a stock market Armageddon off your list of fears. No question, the retirement of tens of millions of boomers in the coming decades will have a major impact on everything from health care (count on surging demand) to real estate (good-bye, suburbs, hello, beach house). And, the thinking goes, the generation that loaded up on stocks as they saved for retirement will crash the market once they sell those shares to pay for retirement.
Here's why that's not true.
Stock ownership is extremely concentrated among the very highest income brackets - those in the top 10% hold 68% of financial assets, according to a 2006 study by the Government Accountability Office. These wealthy investors are unlikely to be so strapped for cash that they have to sell their shares in a hurry. Instead, says George Walper, co-author of "Get Rich, Stay Rich, Pass It On," most affluent families intend to preserve assets for their heirs. Moreover, many baby boomers plan to stay in the work force longer than an earlier generation did, even into retirement, which would further reduce the need to sell shares abruptly.
6. Myth: Without a pension, you're doomed
It's true that baby boomers will get far less financial help from pensions than their parents did. Seeking to cut the cost of providing retirement benefits, more and more companies are dropping or freezing their traditional plans - the ones that your boss paid for, the ones that gave you a guaranteed monthly income for the rest of your life - leaving you with retirement accounts like 401(k)s that you have to fund and manage.
In 2005 only one in 10 private-sector employees was covered solely by a defined-benefit plan, compared with 37% in 1985, while the percentage of employees with 401(k) plans jumped to 63% from 28%. Without a pension you lose the prospect of a predictable lifetime paycheck. That's the story, anyway.
But the truth is, the defined-benefit pension was never a fabulous deal for most workers. Because the traditional pension is designed to reward longtime employees, the size of the pension depended in large part on how long you stayed with your employer. So if you switched jobs a few times during your career, as most people do, you lost most of the benefit.
According to the Employee Benefits Research Institute (EBRI), last year the average annual pension payout for those age 65 and older came to just $10,902. When held up against good old pensions, the 401(k) tends to get a bum rap. Because it's portable, a 401(k) allows you to have a normal, 21st-century flexible career and still put away enough to fund a more comfortable retirement. And if it's that "check a month for life" feeling you want, it's a simple matter to convert your 401(k) savings into a pension-like income stream.
7. Myth: Social Security won't be there
Social Security isn't going the way of the LP record soon. Sure, the headlines are alarming. In just 10 years the cost of Social Security benefits will outstrip the amount that workers pay into the system, according to government studies. And by 2041 the Social Security trust fund reserves will run out, unless Washington gets around to addressing the problem.
But that doesn't mean Social Security will shut down. Enough new money will continue to flow into the program from payroll taxes to fund 70% to 75% of scheduled benefits until 2081. Andwith a few reforms, Social Security could continue to pay full benefits. "Compared with theother issues we face, such as financing health care, fixing Social Security is child's play," says Alicia Munnell, head of the Center for Retirement Research at Boston College."You could raise the payroll tax by just one percentage point for both employers and employees, and you would be able to fund full benefits for the next 75 years."
So it's a good bet that you can count on something close to what retirees collect today. The real issue is how big even a full benefit will be. "Most Americans think that Social Security will replace more of their income than it really does," says Dallas Salisbury, president of EBRI.
For the average retiree, Social Security currently covers only 39% of pre-retirement income; and if you earn more than the maximum taxable amount ($97,500 this year), Social Security will replace just 26%, on average, of the income you earned on the job. And those percentages will drop over the next 20 years to 33% and 20%, respectively. That's largely because Medicare Part B premiums, which are deducted from your Social Security check, are increasing at a faster rate than your benefit's annual cost-of-living adjustments.
8. Myth: Your house can finance retirement
Treating your house as the ultimate retirement insurance is an easy trap to fall into. Even with the housing market in the doldrums, the five-year real estate bull market has likely left you feeling house-rich. According to a 2004 study by the National Economic Bureau, upper-income boomers ages 51 to 56 have a third of their net worth invested in their principal residence.
As recently as May, a survey of affluent boomers by financial adviser Bell Investments Advisors found that nearly 70% were relying on their homes as a retirement asset. Question is, will the strategy work? The answer is, not that well.
Why? Because it's hard to eat out on your home equity. You have to live somewhere. To turn your equity into cash, you can sell and then rent, move to a cheaper area or downsize. Most retirees prefer to stay put. Yes, you can do what a small but growing number of retirees are doing: Get a reverse mortgage, which is a loan against the value of your house that you don't have to pay back. (When you die or move out, the loan is paid off by the sale of the house, which means you may not be able to pass the home on to your children.)
But these loans give you much less than the value of your house. For homeowners ages 62 to 69, lenders will typically let you borrow just 49% of your home equity, says Wharton finance professor Nicholas Souleles.
The best way to look at your house is as a place to live, not a retirement account. So in the years leading up to retirement, don't overinvest in it with the idea that you can get that money out later. Keep your mortgage and other housing expenses to no more than 28% of your income, and don't prepay your mortgage instead of saving for retirement.
9. Myth: You're too old to start saving
Okay, it would have been better to start saving early, but let's face it: Most people don't. Still, there's hope for late starters (even those starting at 50). A few years of serious saving can make a huge difference to your quality of life in retirement.
"The first thing you need to do is take a reality pill," says Martha Priddy Patterson, director of employee-benefits analysis at Deloitte Touche. "Figure out what you have and how much you'll need to put away for a decent retirement."
Then launch into savings overdrive - you need to stash away as much as, or more than, someone seeking to retire early. You do have one thing going for you. Anyone over age 50 can also make catch-up contributions of as much as $5,000 to a 401(k) and an additional $1,000 to an IRA.
You might be surprised at how quickly your work can show results. Say you are a 50-year-old earning $100,000 with only $150,000 saved. Research by T. Rowe Price shows that if you put the max in your 401(k), including a catch-up contribution and a 50% match, plus invest another 5% outside the plan, you'll have $1.5 million by age 65, assuming you earn an average of 8% a year. With that, a true retirement will be no myth at all.
10. Myth: Short-term market swings don't matter
It's comforting to look at historical returns. Despite the occasional setback, the market continues to rise over the long run. In any 10-year period since 1926, you'd have made money in stocks 97% of the time; over 20 years you'd be ahead 100% of the time.
As long as you're patient and keep investing, you'll do well, right?
Not necessarily. When you're far from retirement, you can tough out even devastating bear markets, buying low while you do. Once you near your quit date, the rules change. Say you were within a few years of retirement in January 2000, on the eve of the March 2000 to October 2002 meltdown, when stocks plunged 44%.
If you were solely in stocks, it would have taken you 41/2 years just to break even. But if you'd had 60% of your portfolio in stocks, 30% in bonds and 10% in cash, you'd have had far milder losses of 21%. Once you start cashing out, a bear market of that magnitude can seriously jeopardize your standard of living. If youwere a retiree with that same all-stock portfolio in the 2000-02 bear market, those losses would mean you'd have only a 43% chance of seeing your money last until age 85 vs. 80% if you had a more conservative allocation.
11. Myth: Top priority is the kids' college
Unless you expect your children to support you in retirement, stop thinking like an all-nurturing parent. When you have kids, it's only natural to believe that college needs are more pressing than your far more distant retirement. A recent survey by the College Savings Foundation found that 53% of parents consider college savings their top priority, ahead of retirement or a house.
Problem is, this kind of thinking can lead you to pass up a big weapon: the power of compounding over time.
Save $100 a month from age 25 to 35, then stop and let the money grow. You'll have $182,000 in 30 years. Wait until you turn 45 to start saving and you'll have to put away $315 a month for 20 years to end up with the same amount.
Then too, if you come up short when it's time to pay for college, you (and your kids) can get help, from loans to outright grants. You can't apply for a retirement scholarship at age 65. That doesn't mean you should give up entirely on saving for college or other goals. Just make putting away money for retirement your top priority.
As for college, don't assume you have to save enough to pay the full price tag - for most families, a reasonable goal is to save for a third of the costs and make up the rest through financial aid, loans and your income when classes start and the bills roll in.
12. Myth: Decent savings plan = early retirement
Wouldn't it be great to call it a career in your fifties and spend the second half of your life doing whatever you want - with no money worries to get in the way? For many Americans that's the dream. Yet when you consider how much you have to overcome to retire early, that dream looks more like wishful thinking. You need a portfolio big enough to support you for some 30 or 40 years. You won't qualify for Medicare until age 65, and full Social Security benefits don't kick in until at least age 66. The only way to pull off this feat is through prodigious saving - at least a third of your take-home pay.
Still, this isn't a bad myth to strive to make true. With four out of 10 workers forced to leave their jobs sooner than planned because of layoffs or health problems or to care for an ailing relative, according to a McKinsey survey, it's hard to go wrong by saving and investing for the goal of an early exit date. If you choose to work longer, you'll have that much more secure an eventual retirement.
13. Myth: You're bound to mess up your 401(k)
It's true that if you set out to make a colossal mess of your 401(k), no one is going to stop you. You can cash out when you quit or borrow once too often. And now there's no longer a pension sponsor taking responsibility for paying you a certain benefit no matter what; all the investment risk falls to you.
But you're about to get a lot more help if you want it. Last year's Pension Protection Act gave employers the green light to take more responsibility for their workers' retirement savings. Now an increasing number of plans will give you investment advice or even account management. And when you start a job, your plan sponsor may automatically enroll you in the 401(k), raise your contribution level each year and direct your money into diversified investments, such as life-cycle or target-date funds, unless you opt out.
All of which means that even if you never make an independent investing decision, you can nevertheless wind up with a decent portfolio.
Still, you can probably do better with just a little effort. Forstarters, you should try to save the max ($15,500 this year) rather than the 6% or so of salary that many plans set as a default level. And while target funds work well, it's not hard to design a customized mix that suits your goals and risk tolerance.
Copyrighted, CNNMoney. All Rights Reserved.
Bank of America 3Q Profit Falls 32 Pct
By Ieva M. Augstums, AP Business Writer
CHARLOTTE, N.C. (AP) -- Bank of America Corp., the nation's second-largest bank, said Thursday its profit fell 32 percent in the third quarter as trading losses and write-downs on a wide variety of loans offset solid revenue growth in most businesses.
Net income declined to $3.7 billion, or 82 cents per share, in the three months ended Sept. 30 from $5.42 billion, or $1.18 per share, a year ago.
The Charlotte-based bank's revenue fell 12 percent to $16.3 billion from $18.49 billion last year.
Analysts expected earnings of $1.06 per share on revenue of $18.3 billion, according to a poll by Thomson Financial. The earnings estimates typically exclude one-time items.
Its shares fell $1.63, or 3.3 percent, to $48.40 in premarket trading.
Earnings from its global corporate and investment bank fell by $1.33 billion, or 93 percent, as a result of the disruption in the financial markets during the quarter.
Its expense provision for the unit increased $865 million due to consumer and small business credit costs rising from post bankruptcy reform lows, growth and seasoning in various portfolios and stress in several portfolios driven by the weakened U.S. housing market.
"While the significant dislocations in the capital markets have hurt most participants, we are still very disappointed in our third-quarter performance," Chairman and Chief Executive Kenneth D. Lewis said in a statement. Nonetheless, he added "the majority of our businesses experienced solid revenue growth as sales momentum continued, demonstrating the value of our diverse business mix."
In the bank's largest consumer unit, which includes America's biggest credit-card business and bank-branch network, net income dropped 16 percent to $2.45 billion. Bank of America became the biggest U.S. credit card lender when it bough MBNA Corp. last year. Earnings were hurt this quarter by higher managed credit costs, the bank said.
Wealth-management revenue increased 24 percent to $2.2 billion, as profits grew 17 percent to $599 million. The business was aided by the company's $3.3 billion acquisition of U.S. Trust from Charles Schwab Corp. earlier this year, which contributed about 10 percent to revenue and 5 percent to net income.
Investment banking revenue fell 44 percent from a year ago as sales and trading-revenue declined.
For the first nine months of the year, net income was $14.7 billion, or $3.25 a share, down from $15.88 billion, or $3.44 a share in 2006. Revenue was $53.65 billion, down from $54.1 billion in 2006.
Net income declined to $3.7 billion, or 82 cents per share, in the three months ended Sept. 30 from $5.42 billion, or $1.18 per share, a year ago.
The Charlotte-based bank's revenue fell 12 percent to $16.3 billion from $18.49 billion last year.
Analysts expected earnings of $1.06 per share on revenue of $18.3 billion, according to a poll by Thomson Financial. The earnings estimates typically exclude one-time items.
Its shares fell $1.63, or 3.3 percent, to $48.40 in premarket trading.
Earnings from its global corporate and investment bank fell by $1.33 billion, or 93 percent, as a result of the disruption in the financial markets during the quarter.
Its expense provision for the unit increased $865 million due to consumer and small business credit costs rising from post bankruptcy reform lows, growth and seasoning in various portfolios and stress in several portfolios driven by the weakened U.S. housing market.
"While the significant dislocations in the capital markets have hurt most participants, we are still very disappointed in our third-quarter performance," Chairman and Chief Executive Kenneth D. Lewis said in a statement. Nonetheless, he added "the majority of our businesses experienced solid revenue growth as sales momentum continued, demonstrating the value of our diverse business mix."
In the bank's largest consumer unit, which includes America's biggest credit-card business and bank-branch network, net income dropped 16 percent to $2.45 billion. Bank of America became the biggest U.S. credit card lender when it bough MBNA Corp. last year. Earnings were hurt this quarter by higher managed credit costs, the bank said.
Wealth-management revenue increased 24 percent to $2.2 billion, as profits grew 17 percent to $599 million. The business was aided by the company's $3.3 billion acquisition of U.S. Trust from Charles Schwab Corp. earlier this year, which contributed about 10 percent to revenue and 5 percent to net income.
Investment banking revenue fell 44 percent from a year ago as sales and trading-revenue declined.
For the first nine months of the year, net income was $14.7 billion, or $3.25 a share, down from $15.88 billion, or $3.44 a share in 2006. Revenue was $53.65 billion, down from $54.1 billion in 2006.
Bank of America Corp.: http://www.bankofamerica.com
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