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Thursday 29 September 2011

Think Twice About Paying Off Your Mortgage, Retirees!





Retirees: Think Twice About Paying Off Your Mortgage


NEW YORK (CNBC) -- The countdown to retirement is on for millions of baby boomers and, thanks to a lifetime of diligent saving, some have amassed enough wealth to pay off their mortgages and live debt free. 


Conventional wisdom says it's best to pay off your mortgage before retirement, but given the low-interest rate environment, and the need to preserve cash in an unstable economy, that strategy is no longer absolute.

"Paying off your house is one goal, but having a zero-mortgage liability is not the answer for everyone," says Jennie Fierstein, a certified financial planner (CFP) in Westborough, Mass. "If you don't have a stream of resources to replenish it, you might do yourself a disservice by taking money out of the bank to pay off your mortgage."

Retirees themselves, it seems, are equally torn as to the most prudent course of action.

According to the Center for Retirement Research at Boston College, 41% of U.S. households aged 60 to 69 in 2007 maintained a mortgage. Of these, 51% had sufficient assets to repay their loans.

When it pays to borrow
 
While most financial planners agree that owning your home free and clear during retirement is a worthy goal, Elaine Bedel, with Bedel Financial Consulting in Indianapolis, says there are times when it makes more financial sense to keep your money in the market and use the earnings to pay off your loan.

That's particularly true, she says, if you need to invest (however conservatively) for growth.

"There are a few of my clients who feel like if they don't take the risk to get the growth, they're not going to be able to meet their retirement objectives and live the lifestyle they want," says Bedel. "If you take a big chunk out of your nest egg and the income it was generating was being used to meet your mortgage payments, as well as additional living expenses, that may not be the right thing to do."

CFP Fierstein agrees, noting most retirees are advised to withdraw no more than 4% from their nest egg each year to ensure they won't outlive their income.

Thus, if you take $200,000 out of a $500,000 portfolio to pay off your house, your income based on that 4% drawdown rate would drop to $12,000 from $20,000 per year. (The $20,000, of course, would have had to help pay for your mortgage.)

"It's very dangerous to tie up all your money in your house, because your house is not going to generate
income," says Fierstein. "It's nice security, but you lose flexibility and depending on how conservatively you invest your remaining portfolio you may not have enough income to live on."



What's your rate?

When determining whether to pay off or keep your mortgage, you should also consider your interest rate.

If the average after-tax return on your investments is greater than the after-tax cost of your mortgage, it may make sense to keep your money invested, says Fierstein.

Don't forget to factor in the effect of the mortgage-interest tax deduction.

If you're in the 30% tax bracket and you're able to claim the full deduction, a 5% loan is really only costing you roughly 3.5%.

Thus, you'd only have to earn 4% on your investments to make it worth your while. (Given the low interest-rate environment, however it's nearly impossible to achieve that rate of return on more conservative, fixed-income products such as bonds and certificates of deposit.)

"It's hard to find comparable risk-free investments, so you have to be able to stomach a loss if you want to go that route," says Jean Setzfand, AARP's vice president of financial security. "You can't get a plain vanilla CD anymore, because those rates are too low."

Getting close
 
If you're nearing retirement but haven't yet quit, the case for keeping your mortgage and continuing to invest is more clear -- at least until you part ways with the boss.

According to a 2007 study by the Federal Reserve, directing extra money towards your low-interest mortgage loan at the expense of continued contribution to your 401(k) is a costly mistake.

Organization of the Federal Reserve SystemImage via Wikipedia
Some 38% of the U.S. households that are accelerating their mortgage payments instead of saving in a tax-deferred account, such as a 401(k) or traditional IRA, are making the "wrong choice," it concluded.

For those households, reallocating their savings towards a tax-deferred account instead would yield a mean benefit of 11 cents to 17 cents per dollar, depending on the choice of investment assets in the account. In all, the study notes, "those misallocated savings are costing U.S. households as much as $1.5 billion per year."

When to pay it off

Despite the limited scenarios in which keeping a mortgage during retirement might make sense, AARP's Setzfand and financial planners Bedel and Fierstein agree that most retirees would be better off eliminating debt (however low the interest rate) for the peace of mind it affords.

Money, after all, isn't just about the math.

"I think for the general population our guidance is still the old adage of paying off your mortgage before you retire," says Setzfand of AARP. "There isn't anything as safe as being rid of that mortgage and that burden before you hit a period of your life where you're not bringing in a paycheck."

Indeed, mortgages consume 20% to 30% of the typical household's fixed expenses.

While some maintain that using savings to pay off one's mortgage is unwise, as it leaves you less cash on hand for unexpected expenses, such as medical costs and home repairs, Anthony Webb, the research economist who authored the Center for Retirement Research study, believes that argument lacks validity.

Households "need to consider what they would do if the bad event actually happened," he writes. To wit, how they "would maintain their mortgage payments once their financial assets had been spent."

Remember, too, says Bedel, you can always take out a home equity line of credit on your paid off home, which can satisfy the need for cash reserves.

If you can't pay off your mortgage in full without depleting your nest egg, says Fierstein, at least shoot for a more manageable monthly payment.

"I strongly advocate trying to pay down your mortgage, so when you reach retirement you're not faced with a standard of living crisis," she says. "There is some wisdom to paying off a portion of your mortgage so you have minimal payments and some left over in an emergency fund."

A generation ago, retirement planners often started with the premise of a paid off home, using Social Security, company pensions, and other income sources to help their clients cover living expenses.

Today, however, with interest rates at historic lows and many retirees chasing returns to offset losses incurred during the market meltdown, a mortgage-free retirement is not necessarily the long-term goal.

Deciding what makes sense for you depends on your financial profile, interest rate, and your ability to stomach risk.

-- Written by Shelly K. Schwartz, special to CNBC

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Wednesday 28 September 2011

A man of his time, Samuel Kam





Samuel Kam: A man of his time

By ROUWEN LIN star2@thestar.com.my

Having lived through wars and peace, a nanogenarian believes everyone can be useful. One just has to grab the chance to do so.

WHEN Japanese enemy planes circled the sky and dropped bombs on China’s wartime capital of Chungking in the summer of 1940, Samuel Kam, at that time a government official, sought refuge in an air raid shelter with 60 colleagues.

When incendiary bombs destroyed the shelter, Kam, then 25, found himself assigned to yet another shelter, the same one as some of the top-ranking officials in the Chinese army.

And if you think it is just in period war films that grim and gaunt war generals recite Tang dynasty poetry while waiting out the bombardments, think again.

Engineer in charge: ‘I never imagined that I would be an author,’ says Samuel Kam, 96, who wrote Through Wars And Peace. 
I recently had a long chat with Kam, now 96, at his home in Petaling Jaya, Selangor. He tells me that his eyesight is not as good as it used to be and he walks with small, careful steps with the aid of a walking stick. But when he talks, he maintains a consistent pace, breaks into laughter easily, and expresses his thoughts with an eloquence that men half his age would envy.

“I am very busy every day. I have a secretary come in to help me do some necessary things. There could be numerous phone calls to and from friends and families here and abroad, as well as friends dropping by for a visit. Of course, in old age, you don’t have the speed that you want to have. You have to do things very slowly. So although I am busy, I feel that I cannot achieve much,” he says, laughing.

Born four years after the 1911 Chinese Revolution, Kam grew up in Hong Kong, served as the governor-general’s de facto foreign affairs officer in Hainan, returned to Hong Kong and taught in a girls’ school, and then sailed 19 days on a ship to America to do a master’s degree in chemical engineering at UC Berkeley (where some lectures were conducted at night because a professor was involved in top-secret research work related to the hydrogen bomb during the day!).

He stayed on to work as a chemical engineer in the United States before a varsity mate extended an invitation to go to Singapore to help develop Lam Soon Cannery, a family business started by the friend’s father in the 1930s.

Today, Lam Soon produces many household brands – Knife cooking oil, Daisy and Naturel oil and margarine, May and Fruitale soap, Drinho beverages and Zip detergent, just to name a few.

But back in the 1950s, the company was not doing well. Initially a producer of soy sauce, it envisioned being a jack-of-all-trades and added cooking oil, laundry soap, canned food and coffee to its product repertoire.

Unfortunately, its machines were badly maintained and the unplanned layout of the factory floor resulted in a production process that was far from optimum. Besides, machine operators were untrained. Thus the company could barely keep its head above water even with the help of overdrafts.

Young Kam and his wife, Lin Kwok Fong.
“Both the technical and management aspects were in a mess. No one was even able to tell me what the product costs were.

“At this time, the main business of the company was cooking oil, but the product was of poor quality. The company marketed the oil, refined from coconut oil extracted from copra, as clear and fragrant. But in reality it was neither clear nor fragrant, and retained the copra smell,” says Kam, adding that he made many technical changes, which eventually led to the company improving its financial situation.

“Lam Soon had never had a professional engineer before and I was given the post of chief engineer, even though I was really the only engineer there!”

Lam Soon in Malaya

So that was how Kam started out in South-East Asia in 1955, where he has – barring a stint in the US as an engineer when a former boss secured him an immigrant visa – lived since. He became a Malaysian citizen in 1969.

After three years with Lam Soon Singapore, he moved to Malaya and played an instrumental role in setting up Lam Soon Oil and Soap Manufacturing Company. When the country gained independence in 1957, high import duty was imposed on goods and building a factory here seemed like a step in the right direction for the company. But financial and manpower constraints meant it wasn’t exactly a walk in the park.

“I was sent to Malaya without any budget, without manpower, and I was told to build a modern factory with minimum cost. We had to compete with the multinational Lever Brothers (later known as Unilever), which had well-established brands such as Planta and Lux.

“The company had no money; often when the machines arrived, we were not able to pay someone to install it! Creditors chased me for money all the time. It was hard work and I had a really tough time. But I was still young, in my early 40s, and I had courage,” he says.

Kam wrote his memoir especially for his grandchildren (from left) Timothy, Priscilla and Philip.
Lam Soon’s new factory, built on a three-hectare plot of land in Petaling Jaya in the late 1950s, was to have an oil mill and oil refinery, a margarine section, a soap section and a glycerine treatment plant.

“The factory that I built in Malaya had a United Nations of machinery – the best automatic soap machinery from Italy, efficient German oil press, and other machines from America, Denmark, and England, as well as locally. I sourced machines from all over the world, provided that they were economical and worked well.

“Labour in Malaya was cheap, so people asked why I thought automatic machines were necessary. But I said – you have to look ahead. And it is important to have good machines if you want good products.”

Kam believes that a technical man has to be at the helm during the start-up of such an industry. The accountants and marketing people can come and serve later, he says.

“After helping to set up Lam Soon in Malaya, I went to America to work. But my heart was always with Lam Soon and I felt that I could maybe contribute more in South-East Asia, so after a while, I decided to come back. I considered it lucky for me that I could put my skills and knowledge to good use.”

And what a contribution it turned out to be. When he returned to Lam Soon in the 1960s, cooking oil was still refined from coconut. Palm oil (from the palm fruit), now commonly used as a cooking ingredient, was not commercially used then. Insufficient local supply of copra (at one time, large quantities had to be imported from Indonesia) and an increasing supply of crude palm oil got Kam wondering whether palm oil might make a good alternative raw material.

“Malaysia produces lots of palm oil every year so I tried to find out how to turn it into cooking oil. I was also looking forward to using palm oil to produce soap. We started with palm kernel oil and moved on to producing cooking oil from palm oil. We bought a centrifugal machine from a Swedish company in the late 1960s and got a two-year exclusive use of the new technology.”

Kam during an oil palm plantation inspection in his Lam Soon days (centre).
Lam Soon built the first oil fractionation plant to manufacture cooking oil in the country and sales of the palm-based oil grew when the Malaysian Medical Association declared in a research report that refined unsaturated palm oil is beneficial to health.

“After all its early troubles, Lam Soon is a huge success today,” he says.

Kam adds that he would like to think of the switch from coconut to palm oil as a small contribution to society.

“It is a healthier alternative to coconut oil. Once the country began to know the value of palm oil, the Palm Oil Research Institute of Malaysia (Porim) was set up to carry out research in this industry. I was one of the advisors for the research programme. Malaysia took a wise step in getting all kinds of oil experts from America, England, Holland. Palm oil is now one of the biggest pillars of the Malaysian economy.”

He retired from Lam Soon in 1982, at the age of 67, but stayed on as one of its directors until up to about five years ago.



East and West

The eldest son and second oldest of six children, Kam grew up in what he describes as a close-knit “typical Confucian family”.

“My mother was a very gentle woman and treated everyone very well. My father was a Confucian scholar and magistrate of two counties. At that time, to get ahead in life, you had to pass your examinations. He got the best private tutors for me and at a young age, I had to memorise and recite Confucian analects and the writings of Mencius for six to eight hours every day.

“At that time I didn’t even know what they meant, but because I was young, the memories are vivid and even today I am still able to recite what I learned as a boy.”

After an education in Chinese classics, he went on to a Chinese primary school where he was given a firm grounding in Chinese historical readings. Then his father, convinced of the importance of English in westernised Hong Kong, enrolled him first in the English-medium Wah Yan College, followed by King’s College.

“My father decided that I should be well-versed in the English language so I went to these two secondary schools, the best in Hong Kong at that time. The teachers at the senior classes at King’s College were all from Britain and graduates from Oxford, Cambridge, London University. So basically I got a very good English education also.”

Kam was then awarded a scholarship to study at the prestigious University of Hong Kong, but his father continued to arrange for private tutoring in Chinese literature, foreseeing the possibility of his eventually taking up a job on the Mainland.

“The university is ranked among the best in the world and even back then was very expensive. If I didn’t to get that scholarship, I don’t think my father could have afforded to send me there,” says Kam, adding that Physics, Chemistry and Mathematics were his favourite subjects in secondary school.

He reminisces that his life would probably have turned out very different if he hadn’t gone to the University of Hong Kong because he would have likely pursued his education in mainland China.

The combination of a Chinese and English education has served him very well in his life and Kam says that he owes eternal gratitude to his father for having the foresight to provide him with an education that straddled the best of east and west.

“The combination was a great advantage to me. If I only had the English education, I could have never worked in Lam Soon. And without the Confucian education, I could hardly have worked in China during the war.”

A book is born

Blessed with an impressive capacity for recollecting his younger days, Kam was struck by an urge to write it all down after he retired.

“I felt that I had gone through a very turbulent world. I have travelled throughout the whole world and I moved from one place to another all the time. I wanted to write a book, especially so that my descendants – like my son Paul and my three grandchildren – could read it. I wanted to write about my experiences, my sentiments and feelings about the dramatic changes in the world,” he says.

His friends were always captivated whenever he regaled them with snippets of his life.

“They found it really interesting and told me: ‘You must write, you must put all these down in black and white.’ They encouraged me, so I sat down and started to write seriously. I never imagined that I would be an author. I may say that I’m a good engineer, but not a good writer although I like to read literature. But I found that once I started writing, I had many things to write,” he says.

Originally, he wrote his memoir in Chinese by hand, in prose and verse. Then he got someone to help type out the manuscript.

Kam took about five years to complete A Memoir At 90: Life In A Tumultous Century and it was published in 2007. He hopes to use it as a medium to introduce his life to young people and those who are interested in how the world has changed, especially now that China is coming up as a world power.

“I started very slowly but as time passed, I gained momentum. Towards the end, I even sacrificed my time for exercise to finish writing the book. I never kept a diary so I had to write everything from memory.”

People who read his memoir were astonished that despite having to go many decades back in time, Kam was able to recall many minute details.

“People are very surprised at my good memory. When I think about a part of my life, the event comes to me immediately. It’s like a movie. Maybe it is in the genes; my sisters and brothers also have good memories. Sometimes I wonder about my friends who have very poor memories – I cannot understand how this can be!

“My memory is not that good now and I have problems remembering names. But I can remember events very well. As a result, my mind is always busy. I find that I use up lots of energy just by thinking!

“And when you grow older, you always think of the past,” he adds. Memories of his wife, Lin Kwok Fong, whom he married in 1944, remain clear. She died in 1993 after a stroke.

In his book, he writes: “My wife of 50 years left without so much as a goodbye... When I was having lunch at home the day after Kwok Fong’s passing, I sat at the table for a long time with tears streaming down my face. It dawned on me that I would never have my wife sit beside me again.”

For Kam, a typical day now starts at six in the morning. He does some simple exercises even while in bed and then takes a morning walk. Meals are kept simple, and after lunch he has an afternoon nap, a habit he has cultivated for the last 50 years.

“Nowadays, being an old man, my life is very simple. In my younger days I played golf, practised tai chi, and watched movies. Now, I cannot have these any more, so listening to classical music before I go to bed is the only amusement I have.”

Beethoven is one of his all-time favourites.

“I didn’t like classical music when I was young, but now I find it the most beautiful kind of music because it harmonises one’s emotions,” he says, adding that he has been a regular patron of the Malaysian Philharmonic Orchestra since it started.

Kam has also been active in social work involving drug rehabilitation and scholarships for tertiary education.

With almost a hundred years behind him, are there any words of wisdom he would like to share?

“Life is never a straight path. But even when you are down, you must not give up. You must struggle to overcome. I believe there is always a way and I also believe that any man can be a useful person,” he says.

The tricky bit is finding out what you are good in and trying to develop it.

“Of course, people are born with different levels of intelligence, but I think everybody is given a few opportunities in his life. And when an opportunity comes along, you must recognise it as one and grab it.”

He has certainly done well with the opportunities that came his way. Perhaps, more importantly, he has helped create many opportunities for others.

An English edition of Samuel Kam’s memoir, titled Through Wars And Peace, will be available in bookstores next week. The book was translated from A Memoir At 90 by Sarah Yip, who also added more background information on certain topics to cater to an English readership. 

Tuesday 27 September 2011

China To Launch Space Station Test Module: Rehearsal for Tiangong-1 launch comprehensive and successful



http://p3.img.cctvpic.com/program/china24/20110927/images/1317086574883_1317086574883_r.jpg 
Special Report: Tiangong I - China's first space rendezvous and docking task

Rehearsal for Tiangong-1 launch comprehensive and successful 

 On the afternoon of September 25, all participants of the “Tiangong-1” mission completed a joint rehearsal at the launching site. The results showed that the launch conditions were ripe with smooth commanding within all systems and units, proper technical conditions and devices in sound operation.






The combined launcher-rocket of the “Tiangong-1” target spacecraft was transported to the launching site on the morning of September 20, and then function test was conducted on the launcher and the target spacecraft in addition to interface matching check, joint check upon locations of the launcher and the rocket, joint drill, and electromagnetic compatibility testing. The comprehensive joint rehearsal at the launching site conducted on September 25 was a comprehensive simulation drill according to the launching procedures which verified the working status of major systems.



At 14:30, the joint rehearsal entered the 3-hour countdown under the unified command of the Beijing Aerospace Control Center. The “Tiangong-1” target spacecraft will receive comprehensive quality review on all of its systems and complete fuel filling in the next few days.

Financial Crisis: Calculating the Probability of Extreme Events

Cumulative distribution and probability densit...Image via Wikipedia



ScienceDaily (Sep. 26, 2011) — It had to happen: the property bubble burst and the global financial market experienced its biggest crisis in the last hundred years. In retrospect, many suspected it was coming, but nobody could have known for sure. The traditional investment strategy failed, as all forms of investment suddenly collapsed at the same time. In order to calculate the probability of several such extreme events occurring at the same time, three scientists at the RUB have developed a new method. Prof. Dr. Holger Dette, Dr. Axel Bücher und Dr. Stanislav Volgushev from the Institute of Statistics (Faculty of Mathematics at the Ruhr-Universität) published their findings in the scientific journal The Annals of Statistics

Big things start small

Up to now, when statisticians estimated the probabilities of extreme events, they usually calculated with dependencies between the outliers of statistical series. The outliers, however, make up the smallest part of a data set, e.g. the largest 100 out of 3,600 data. That means they ignore the dependencies of the bulk of the relevant data set, namely 3,500 data, and thus take the risk that important information is lost. Axel Bücher shows how this problem can be solved: "Our work provides a decision aid as to whether it is better to use the full range of data and not only the outliers. If all the data are relevant, then they should all be included. However, this is not always the case. Sometimes these data would falsify the result."



Multidimensional function

The researchers use the copula function for the evaluation. "This is a complicated, multi-dimensional function, which characterises stochastic dependencies between the data" explains Stanislav Volgushev. With this aid, a few years ago we might have noticed that many little termites were nibbling their way into the wooden foundation of the global financial market, whilst we were on the look out for large predators.

Financial crises as motivation for research

"Our research is strongly motivated by the recent financial crises. At that time, almost all the economic models and forecasting tools for loan losses failed because they did not pay sufficient attention to extreme dependencies. In the long run, we aim to develop models and methods that predict such events better" says Prof. Dette, explaining the reason for their research. For several years, the three researchers have been looking into new methods of asymptotic statistics which work with sample sizes approaching infinity. They are financed by the German Research Foundation (DFG) in the Collaborative Research Centre SFB 823 "Statistical modelling of nonlinear dynamic processes." The English-language publication bears the title "New estimators of the Pickands dependence function and a test for extreme-value dependence."

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Monday 26 September 2011

How To Kick Innovation Up a Notch to Nanovation?






Martin Zwilling, Contributor;
Image via Wikipedia

What sparks paradigm-shifting innovation in any business? It’s a special mix of entrepreneur and company, regular in every respect except for having the courage and foresight to make an idea happen that was supposed to be impossible. As an entrepreneur in a startup, how do you know if you have this potential, and what are the steps to get from an innovation to a revolution?

The first step is to meditate on the examples set by others, like Steve Jobs of Apple, Jeff Bezos of Amazon, or Thomas Edison with the electric light. There are many others, like the one I just finished about Ratan Tata bringing out the Nano car in 2009 in India for less than $2,500. The book is called “Nanovation,” by Kevin & Jackie Freiberg.



These authors have studied many such examples, and summarize my own perspective on the characteristics of entrepreneurs they call “nanovators,” that produce true, life-changing innovations, which they call nanovations:
  1. Get wired for nanovation. We all agree that innovation is an adventure into the unknown. If you want people to follow, you need to be able to convince them of three things: (1) your mission is worth supporting, (2) you have the competence to build a critical mass, and (3) you have integrity to look out for their best interests along the way.
  2. Lead the revolution. Nanovators have more than the vision; they have the drive to lead, and the focus to stay on target. They are wired to win. Organizations don’t produce game-changing innovations; people do. They allow a leap of faith in their own ideas, as well as in the ideas and capabilities of their team.
  3. Build a culture of innovation. You need a culture where restlessness is tolerated, curiosity is encouraged, passion is inspired, creativity is expected, and people are always talking about what’s next. Ultimately, the mind-set changes so significantly that innovation is natural, and no one is conscious of it.
  4. Question the unquestionable. Outsiders ask a lot of questions because they don’t presume to know why something is done a certain way. Make your insiders think like outsiders. Provocative questions like “What if?”, “Why not?”, or “So what?” can help to get everyone outside the box.
  5. Look beyond customer imagination. First-of-a-kind products empower customers to do things they didn’t even know they wanted to do, and now can’t live without them. The computer mouse, Tivo, and Teflon are examples. Listen to customers, but remember that they can’t always tell you what they don’t know.
  6. Go to the intersection of trends. Nanovators pay close attention to the early warning signs that precede major cultural, societal, and market shifts. Where most people see an isolated trend, nanovators connect the dots by relating one trend to several others. They focus on next practices, versus best practices.
  7. Solve a problem that matters. The key here is to resist the temptation to pay more attention to the technology solution than the problem. Some people create brilliant solutions to non-existent problems, like maybe Segway and satellite phones. These solutions may be nice to have, but won’t ignite a revolution to get there.
  8. Risk more, fail faster, and bounce back stronger. When you pursue a creative idea that takes you beyond, fear tempts you to make compromises. If you can push through this fear and doubt, or bounce back intelligently from initial setbacks, you often arrive at something that has truly never been seen before.
Jeffrey Immelt of General Electric argues that the next big thing, like the Nano, could well be from “reverse innovation,” where instead of industrialized nations adapting their products for emerging markets, innovation in emerging markets will bring new paradigms to home markets. In any case, the future is defined by what we put off until tomorrow, so don’t wait too long to get started.

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