Strapped for cash? Want someone to pay for your way through college? These pitches made by military recruiters seem to be working, since each of the military service academies has seen a sharp rise in applications this year — ranging from a 9% increase at West Point to a 40% jump at the U.S. Naval Academy.

While I’d like to think that the sudden interest reflects a renewed pride in patriotism and interest in national defense, it’s more likely that the draw of free tuition is an increasingly powerful lure. Students at the academies receive an all-expenses-paid undergraduate education in return for the promise of serving in the military after graduation. And reducing college education expenses is high on everyone’s mind these days, boosting enrollment in community colleges and spikes in applications for financial aid at four-year schools.

The military’s financial support is particularly attractive at a time when the costs of higher education are skyrocketing, with no end in sight. The average college endowment — the main pool for funding financial aid at private institutions — dropped 25-30% in the last year. Although tuition fees have grown more slowly this year, the savings are still a pittance. Public colleges are no longer the affordable fallback plan either, as noted in the June issue of MONEY. As options for high education seem bleak, the newest crop of students seem willing to take risk of serving in the military in the return for the promise of some financial stability.

Even if a student’s family can navigate through the expenses of an elite private or public college, after all, the prospect of economic payoff from a degree feels more at risk. Consider that the unemployment rate for new graduates, at 11%, is higher than the national average. After adding the burden of student debts to that mix, pursuing an undergraduate degree through the traditional path doesn’t feel like an ideal investment. 

In addition to avoiding accrued debt, graduates of military academies may have another advantage in entering the workforce after service. An undergraduate education at a military academy is comparable to an education at an elite civilian university; the leadership skills, discipline and technical skills honed in the military’s core curriculum make these veterans unique candidates. General Electric, for one, offers veteran officers a special management training program with the explanation, “Your service made you a leader and a disciplined, strategic thinker with a level of loyalty that is unmatched.”

Obviously the volatility of the labor market still make job placement uncertain for veterans. Another downside may be that the years of required active duty fall during the prime career-building period when civilian peers are creating their early job history.  Returning veterans may find themselves behind in making connections that are crucial to long-term success — although they may have their own network of military colleagues to draw upon.

The financial stability provided by the government is a necessary payment for the unparalleled risks faced by members of the armed forces. Serving is no joke, but neither is managing student debt for decades after graduation.

The safety of municipal bonds is often taken for granted. After all, the theory goes, if a state or city runs short on cash, it can always tax the heck out of its constituents to make up the shortfall. Corporations, on the other hand, don’t have that kind of fallback.

But California’s recent budget troubles have thrown the default possibility back into the limelight. And that might have you wondering if you should bail out before yet another theoretically safe investment proves to be not so secure after all.

If you haven’t been paying attention, California seems to keep getting closer and closer to default, and its government can’t decide how to clean up the mess. Fitch Ratings recently downgraded the state’s bonds to the worst in the country (which happens to be A-, a rating many corporations would kill for). While the spokesman for California’s Treasury department says a default “won’t happen,” could you ever imagine a Treasury spokesman saying default was “kind of a possibility”?

"I'll be bankrupt"?

Let’s start off this discussion with what should be your central question: “What do I have to lose?”

In the case of muni bonds, the answer is “Not much.” For one, single-A rated municipal bonds have a historical default rate of 0.0084%. That is, only about 1 in 12,000 defaults over a 10-year period.

But let’s say you hit that unlucky jackpot. Your state says, “To heck with our creditors. We don’t care if we won’t be able to borrow money again for years,” and refuses to pay. Then what do you have to lose? The answer still is, “Not much.” In fact, according to the Wall Street Journal, in the Great Depression, while more than 15% of muni bonds defaulted, the estimated loss rate for investors was 0.5%. When Orange County, Calif. defaulted in 1994, investors actually got all of their money back.

And here’s what you have to gain: Right now, 5-year muni bonds are yielding 2.14%, which is the same as 2.97% if your income is taxed at 28%. That’s compared to a 2.44% yield on 5-year Treasury bonds.

Let’s say you’re weighing the purchase of a 5-year muni bond in its typical, $5,000 denomination against the purchase of a risk-free Treasury bond. Are you willing to risk a 1 in 12,000 possibility that you lose $25 (0.5% of $5,000) for the 11,999 in 12,000 chances of making an extra $125 over 5 years?

For me, the answer is yes. But if the 0.0084% chance of a $25 loss from a default frightens you, buy a municipal bond mutual fund that can mitigate your risk even more, such as the Fidelity Intermediate Municipal Income fund (FLTMX). Mutual funds will have other risks attached. If interest rates rise, fund prices can fall, causing you a larger loss. But in exchange, you’ll lose little money even if one of the fund’s bonds is completely wiped out.

Now, you could argue that there are even greater opportunities in stocks and corporate bonds, since virtually risk-free assets like Treasuries and municipal bonds aren’t offering much income right now. That aside, muni bonds still look like a better bet next to those issued by the U.S.A.

Bank customers used to the perks of free checking accounts — unlimited check writing, online banking, debit card use and ATM access, to name a few — might have to recalibrate their expectations soon. That’s because overdraft fees, which banks use to subsidize the expense of free checking accounts, have been under fire by consumer advocacy groups. (A quick primer: You spend $8 on lunch at Burger King and pay with your debit card. But there’s only $5 in your checking account. The transaction is still approved, but the bank slaps you with a hefty overdraft fee for the privilege.)

There have already been some changes to the way banks must disclose overdraft fees on statements, but now there’s a bigger push to require institutions to obtain accountholders’ permission before charging them overdraft fees on debit card purchases and ATM withdrawals. President Obama’s proposed Consumer Financial Protection Agency would likely address overdraft fees in some way.

That spells trouble for banks already hurting from the financial crisis. The bulk of revenue in bank retail deposits comes from penalty fees; economic research firm Moebs Services estimates that banks will rake in a total of $38.5 billion in overdraft revenue this year. In fact, a 2008 FDIC study concludes that 74% of all service charges on deposit accounts come from overdraft and insufficient fund fees, which typically range between $35 to $40 per incident. But there’s a small amount of consumers who shoulder most of the fee load: According to a May report from consulting firm Oliver Wyman, 68% of those fees come from just 5% of banking customers (who pay, on average, $1,614 each year). Meanwhile, 74% of customers pay no overdraft fees at all.

But with banks expecting roadblacks to fee income, some experts predict that the free-checking model might be on its way out. Aaron Fine, author of the Oliver Wyman report, recently told banking industry trade publication American Banker, “The industry has to change pretty dramatically because a substantial amount of the revenue that paid for free checking is likely to go away. That business model is not sustainable.”

For now, there are still plenty of free checking options out there, and many experts expect them to remain in some format so that banks can compete for customers. But Probity Financial Services, a small company based in Austin, Texas, partnered with Missouri’s Kennet National Bank in April to offer an alternative to those consumers who are tired of paying hundreds of dollars in overdraft fees each year. For $19.95 a month, you can set up a Probity online checking account that never charges overdraft fees, transaction fees, minimum balance fees and offers free online bill pay and ATM/debit card usage.

“We’re like Netflix for your checking account — you pay a fixed monthly fee and use it all you want,” says Probity CEO Tim Smith.

For those consumers who spend more than $240 a year on overdraft fees, Probity’s checking account is a good solution. Each customer is assigned an overdraft limit (no more than $500) based on credit and banking history. If the customer makes a purchase for more than what’s in his account, Probity covers the excess. To keep the account in good standing, the customer must deposit funds into the account within 60 days, or it will be closed. “The lion’s share of accountholders do bring the account into positive balance,” says Smith. He adds that most customers use direct deposit and typically just need the protection until the next paycheck comes in.

Still, $240 a year to avoid overdraft fees? Unless you’re one of those 5% of customers who spend more than $1,500 each year on those fees, there are still plenty of cheaper options to prevent overdraft pain. (And if you are one of those 5%, can you let me know how the heck that happened?) Many banks allow you to link your checking account to your savings account to cover overdrafts. And there are plenty of ways now to keep tabs on your account balances with email and text alerts. Free checking may be teetering, but it’s not going to vanish overnight.

As the King of Pop, Michael Jackson was bound to have a complicated estate. But in the days following his tragic death last week, the biggest estate-planning hurdles have had nothing to do with the size and complexity of Jackson’s legacy. They’ve been the bare-bones elements of estate planning: having an updated will, an appointed executor for the estate and a named guardian for minors.

Estate planning is all about change: Your plan has to evolve as you marry and divorce, have children, form and cut business ties, and accumulate assets and debt — all things that happened in Jackson’s life (though, admittedly, on a very grand scale). You also have to make sure to share the details of your plan with at least one person that you trust. According to news reports,  Jackson’s latest will dates from seven years ago, but there is speculation about whether a more recent version exists.

If you think you need to update your estate plan, check out these recent Money stories here and here on what to do. You don’t need to be a global pop icon with mega millions to warrant putting together a plan. As Jackson’s death shows, an estate plan is critical if you have minors: It’s the only way you, not the courts, can control who becomes the guardian of your children. Once drafted, you should revisit your estate plan every few years. Even if your circumstances haven’t changed, new estate tax rules could upend your best-laid plans. Need to find an estate planning attorney? Look for one in your area through the American Academy of Estate Planning Attorneys.

The Vanguard Wellington fund (VWELX) turns 80 today. No worries, this is not going to be some trip down nostalgia lane — who cares about old for old’s sake? Rather, what’s compelling about the $40-billion geezer is that it encapsulates the key factors that are the foundation of successful fund investing.

Before I run through those fine points, let me cough up a big, impressive stat: If you had invested $10,000 in Vanguard Wellington at its launch on July 1, 1929, you (or perhaps your heirs) would have more than $4.7 million saved up today — an annualized gain of 8% over the 80 years. (Precisely speaking, it was the Industrial and Power Securities Company that launched back then; the name was changed to Wellington Fund in 1935, and the Vanguard Group, of which it was a cornerstone, was formed in 1974.)

Wellington’s performance, though, isn’t a matter of great returns decades ago obscuring a poor recent record; Wellington has managed a 4.4% annualized gain over the past 10 years. Now, before you scoff that 4.4% isn’t exactly the stuff retirement dreams are made of — you’re right — it is in fact a heck of a lot better than if you had parked all your money in the Vanguard 500 index fund (-1.8% annualized over the 10-year stretch).

There’s no secret to Wellington’s success. And that’s its charm. It just plugs along, putting some very old investing principles to work:

•    Start with stocks, season with bonds. Let marinate. When I started covering mutual funds more than 20 years ago, Wellington was a balanced fund; now Morningstar has it categorized as Moderate Allocation. Whatever you want to call it, the important takeaway is that a stock-heavy portfolio with a complement of bonds works. Wellington keeps about 60%-70% in stocks and 30%-40% in bonds. Even with the risk-dampening slug of bonds, the fund’s 8% annualized gain over the 80-year stretch captured about 90% of the return of an all-stock index over the same stretch, with less risk. And in periods of great volatility, such as the past 10 years, those bonds provide a great cushion to soften the pain of stock-market losses.
•    Dividends are your friend. During the 1990s, dividends accounted for just 16% of the S&P 500’s total return; blame the Internet bubble for that. But what happened in the 90s was both unsustainable and an aberration. The long term trend is that dividends have delivered more than 40% of the S&P 500’s total return; going forward it’s likely that dividends will once again matter, a lot.  It’s not just Wellington’s bonds that provide steady income; the fund’s 4% yield is in part powered by dividend-paying stocks.
•    Don’t Chase. In the late 1960s Wellington’s management decided to “modernize” the fund’s investment approach; it let the stock portion rise form 62% in 1966 to 77% in 1971, and at the same time shifted a chunk of money from staid blue chips to smaller stocks that carried the luster of greater growth potential. It was a disaster; the fund fell way behind its peers. So much so, that the guy who greenlighted that push — none other than John Bogle — was booted. Yep, even legends have lessons to learn. By the early 1980s Wellington righted the ship and returned to its roots.
•   Cheap is Good. I know you’ve heard this one before, but Wellington sure tells it in a powerful way: The no-load fund’s annual expense ratio today is a miserly 0.35%. For a managed fund, that’s a pittance — about one full percentage point less than the average expense ratio. In an environment where the bulls expect 8% a year to be a great return, you better believe 1 percentage point is a very big deal.

None of that is meant as an ad for Wellington. A  low-cost target retirement fund is actually a better next-generation riff on balanced funds like Wellington. With a target you get a mix of stocks and bonds with the added benefit of the allocation mix shifting as you age. And, hey, if you’re into building your own multi-fund, or multi-ETF portfolio, that works too. Just keep in mind the key pieces of what has made Wellington work: Include a mix of stocks and bonds, give props to the power of dividends, avoid performance chasing and keep your costs low. That’ll work this year and most probably for the next 80 as well.

For an elderly person with few assets, a reverse mortgage can be a lifesaver: It enables cash-poor retirees to tap equity in their house for living expenses, home repairs or health care needs. If you’re 62 or older, reverse mortgages allow you to borrow against the value of your home and not repay the loan until you sell the house, move out or die. If the amount owed is more than the value of the house, the lender eats the difference. If it’s less, you (or your heirs) keep what’s left over after paying off the loan. In the meantime, the loan provides income, which you can take as a lump sum, monthly payout or line of credit drawn on as needed.

But make no mistake: Reverse mortgages, which come with high fees and hefty interest charges, are a costly option and often sold by aggressive salespeople who push inappropriate financial products on vulnerable seniors. That’s why Senator Claire McCaskill (D-Mo.) held hearings Monday in St. Louis on reverse mortgages. A year and a half ago, Sen. McCaskill began investigating problems associated with reverse mortgages, including predatory lending, aggressive marketing and the potential risks to the federal government — which insures 90% of reverse mortgage loans. Comptroller of the Currency John Dugan earlier this month said reverse mortgages bear a striking similarity to the risky sub-prime mortgages that got so many Americans in financial hot water. The Federal Housing Administration estimates it may lose $800 million from insuring these loans in the next fiscal year.

Yet the number of people getting reverse mortgages keeps rising. Even as home values are falling (leaving seniors with less equity to tap), more than 112,000 reverse mortgage loans were made in 2008, up from about 22,000 in 2003, according to the National Reverse Mortgage Lenders Association. Monthly reverse mortgage loan volume is setting records too, with nearly 9,000 reverse mortgages made in May.

My colleague Walter Updegrave wrote about the problems with reverse mortgages last year, spelling out how greedy salespeople not only persuade seniors to take out high-commission reverse mortgages, but also convince them to spend the proceeds on high-priced financial products such annuities, boosting their commissions even more.

Retiree advocates at AARP say that predatory lenders are also attempting to get seniors to use proceeds of their reverse mortgage to buy expensive long-term-care insurance. But in most cases, it makes more sense for seniors to use the payout for actual long-term care, not a hard-to-use insurance policy.

If you are considering taking out a reverse mortgage or have a parent or family member who is, don’t fall for a pitch from a salesman who cares more about a lucrative commission than determining whether a reverse mortgage makes sense for you. To learn more about reverse mortgages, check out resources at AARP and HUD.

Do you know anyone who is considering a reverse mortgage or has had a negative experience taking out a reverse mortgage? Tell us about that experience.

President Obama is a pretty good persuader, but he’s been having a hard time selling his health care reform plan. His health care town hall meeting on ABC last Wednesday drew dismal ratings, garnering fewer viewers than a rerun of CSI: New York (and drawing gleeful responses from many of his non-fans). Meanwhile, some of his putative allies in the Democratic party have been sniping away at the plan, and negotiators in the senate have been slashing costs by lopping off some of the plan’s most progressive elements, like subsidies for lower-income Americans to help them afford to buy insurance. (Huh? Wasn’t helping the uninsured get insurance one of the main reasons for the plan in the first place?)

Cost isn’t the only stumbling block for the plan. The other biggie is Obama’s advocacy of the “public option” — that is, a Medicare-like public insurance plan that would compete with private insurers. While some have made alarmist claims that such a plan would drive private insurers out of business, others simply complain that it would cost too much. Indeed, some note, when the Congressional Budget Office added up the costs of early versions of the bill, arriving at a total cost of $1.6 trillion, they did so without including the cost of a public plan. Just imagine, critics say, how much Obamacare will cost with the plan included!

These critics are looking at it backwards, say researchers at the liberal Economic Policy Institute: Including a public plan will actually reduce the overall costs of health care:

While a public plan would indeed likely raise the level of federal government health spending, it is just as likely to reduce total national health spending. Independent research evaluating proposals produced by EPI and other sources has consistently found that a public plan would save money and result in better health outcomes by providing all Americans regular access to health care.

Indeed, they point out, one independent analysis found that having a public plan could actually save the US up to $1 trillion over ten years, while providing health care to all. Some of the elements of the plan contributing to that figure include increased competition among health care providers and lower administrative costs.

It’s a compelling argument, and one that deserves to have a more central place in this debate, lest we nickel-and-dime ourselves into an anemic health care plan that ends up costing us more in the long run, while abandoning the goal of health care for the currently uninsured.

Good news or bad news? The National Association of Realtors reported Tuesday that 33% of May existing-home sales were distressed (read: foreclosures and short sales) and the median sales price is now $173,000.

If you’re employed by the glass-half-full NAR, you need to spin that as good news, and the eternal optimists did not disappoint.  The trade association pointed out that the share of sales that were distressed has declined from the 45% rate in April.

But the half-empty view is hard to ignore. The current median sales price is still 25% below its May 2006 level and down 17% from the year-ago figure. The NAR may suggest that a decline in distressed sales to merely one-third of market volume is a green shoot, but that shoot is still about six feet under.

Plenty of homeowners seem to agree. The National Foundation for Credit Counseling released a survey last week indicating that nearly one-third of current homeowners doubt they will ever be able to buy another home. Forty-nine percent of respondents agreed with the statement, “Because of the current economic climate, the American dream of home ownership is no longer a realistic strategy for building wealth.”

“It appears that whether a person was directly affected or not,” says NFCC spokeswoman Gail Cunningham, “Americans’ attitudes toward homeownership have shifted.” Declines of more than 25% in value will do that to you. (The S&P/Case-Shiller home price index is down more than 30% from May 2006.)

Indeed, the American dream of flipping a house has given way to the nightmare of foreclosures. Refinancing  is getting tougher. Mortgage rates are about 0.7 percentage points higher than in early April, and new rules are generating less-friendly appraisals that can thwart a refi.

And then there’s the humongous elephant still in the room: not enough equity to qualify for a refi.  The Obama administration is reportedly reconsidering the maximum loan-to-value ratio allowed for refinancing under its Home Affordable program. Right now if you have a Fannie or Freddie mortgage and your LTV is as much as 105% — meaning you can be as much as 5% underwater — you may be eligible for the federally-backed refinance deal. But the director of the Federal Housing Finance Agency recently said talks are in progress that could boost the maximum LTV rate for Fannie and Freddie refis under Home Affordable to as much as 125%.

The implicit message: the market has gotten away from the Feds.  When Home Affordable was announced a few months ago the stated goal was to help 4 million to 5 million homeowners refinance over the next three years. But now it appears that housing prices have fallen so far that the Obama administration won’t get anywhere near that figure unless the government lowers the bar to allow mortgages with 25% negative equity to refi. The Feds hinted as much in a mid-May Treasury release: “Fannie Mae has had over 233,000 eligible refinance applications through its refinancing program, with more than 51,000 of these having loan-to-value ratios between 80% and 105%.” And the other 182,000 applications?  I’ll take the fact that the  Feds are floating the notion of changing the program to throw lifesavers out to folks 25% underwater  as a sign that the current cutoff of 5% underwater isn’t doing the trick.

But offering Home Affordable to keep someone 25% under water doesn’t compute for me. That homeowner still has little motivation to keep paying the mortgage if values slip even more from today’s level. I hope I’m wrong, but a year or two from now it it will be interesting to see the default rate on refis with such large negative equity. Perhaps it would be faster and less expensive to let the housing bubble naturally deflate, rather than try to keep propping it up.

The new credit card reform law is full of good consumer protections, but here’s one you might not know about: It’s going to require companies like FreeCreditReport.com (owned by credit bureau Experian) to clearly state that their services aren’t actually free.

Who doesn’t love those FreeCreditReport.com commercials? You know, the ones featuring the lovable 20-something singing about his credit troubles in a variety of musical genres? In the first, he’s dressed in pirate gear and crooning about how he has to work in a seafood restaurant because his identity was stolen (it works best if you don’t think too hard about it). My favorite jingle is the one that has him singing about how he married his dream girl, only to find out that her credit was bad, too. You can see all the commercials here:

The only  problem, of course, is that FreeCreditReport.com is not really free. In order to get your report through the site, you must sign up for a trial membership in the site’s “Triple Advantage Credit Monitoring” program. If you don’t cancel your membership within a 7-day trial period, you’re billed $14.95 a month. And plenty of people have fallen for the site’s promise without realizing they were going to be billed. The Better Business Bureau has received 9,865 complaints about the site in the last 36 months, with some complainants saying that they kept being billed even after canceling membership.

But now, thanks to the Credit Card Accountability, Responsibility and Disclosure Act, companies touting free credit report services must disclose in their ads that consumers are entitled by law to receive a free credit report from each of the three credit bureaus, and that the official web site to obtain them is AnnualCreditReport.com. And radio and TV ads must clearly state, in both the audio and the video, “This is not the free credit report provided for by federal law.”

That’s good news, since the web-only public service commercials the Federal Trade Commission created in response to FreeCreditReport.com’s ads need all the help they can get:

Just about all parents tell the same war stories from childhood: “When I was your age, I had to walk two miles – in 3 feet of snow — to get to school.” Or, “When I was your age, we had only one TV in the house.” But pretty soon, parents may add this one, too: “When I was your age, I didn’t have an IRA.”

The Obama administration wants to stop that story in its tracks.

IRAs, along with 401(k)s, didn’t exist until the mid-1970s. But after 30-plus years, the plans still are not ubiquitous. As Time magazine columnist Justin Fox points out in his blog post, only 57.7% of U.S. workers have some kind of retirement plan. The rest are counting on other savings and/or Social Security.

And that’s a problem, because according to the latest data from the Employee Benefit Research Institute, half of workers ages 55 and older have less than $50,000 saved. The bear market isn’t helping. From the start of 2008 through the first four months of this year, 401(k) account balances for workers ages 55 to 64 fell an average of 10% to 20%.

Obama’s plan for IRAs does not make the accounts universal. Instead, it targets employers that don’t offer a retirement plan to workers. But like Social Security, the benefit would be automatic. If workers aren’t given a 401(k) or similar option, then their employer must automatically open an IRA on their behalf and make contributions through direct deposit, pulling the cash from the workers’ paycheck. Employees who don’t want to participate could opt out.

Critics claim such a plan would A) be too expensive, B) help turn the U.S. into a “nanny state,” and C) be too burdensome for small businesses.

But it’s also hard to argue against a program (any program) that would help people build some retirement security. You can’t rely on employer contributions for it: Just consider the number of companies that cut their 401(k) match this year. Individuals aren’t dependable, either.

And even as dramatic as Obama’s proposal seems, it doesn’t cover everyone. A growing number of company 401(k) plans have an automatic enrollment feature, but not all do.

We already have too many choices to make: How to invest our account, when to rebalance and how much to draw down, for example. Automatic IRAs and 401(k)s could take one decision off the table — and save future generations from hearing yet another story that starts, “When I was your age…”

No one can predict exactly when Bernie Madoff will die. But the date of his death, I bet, will come far later than his lawyer says it will.

The question of Madoff’s expected lifespan is extremely relevant to next Monday’s scheduled sentencing for Madoff, who has pleaded guilty to running a Ponzi scheme that cost more than 1,300 investors a total of more than $13 billion. The 71-year-old Madoff faces a maximum sentence of 150 years, and his victims want him locked up for the rest of his life. Earlier this week, Madoff’s lawyer, Ira Lee Sorkin, asked that his client be sentenced to a mere 12 years in jail.

Given that it’s hard to think of any white-collar criminal other than Madoff who has caused so much pain to so many people, Sorkin’s suggestion of that sentence to the presiding judge in the case, Denny Chin, must seem like the height of gall. But, hey — Sorkin’s a lawyer and that’s his job: To make unbelievable requests on behalf of his client.

What I find outrageous about Sorkin’s letter to Judge Chin isn’t the sentence he asks for, but some of the reasoning he uses to back it up. Citing Social Security Administration data, Sorkin says his client has an “approximate” life expectancy of 13 years. “A prison term of 12 years — just short of an effective life sentence — will sufficiently address the goals of deterrence, protecting the public, and promoting respect for the law….” writes Sorkin.

Hmmm. Is twelve years really a near-death sentence for the scammer? I don’t think so. First, let’s look  at the Social Security life expectancy tables that Sorkin alludes to. Yes, according to the SSA, a 71-year-old male, on average, will live another 12.66 years. But that’s on average; one-half of Madoff’s cohort will live longer than that. And if, 12 years from now, an 83-year-old Madoff shuffled out of jail, he’d have a one-in-three chance of celebrating his 87th birthday. He’d have a one-in-five chance of making it to 90. Just short of an effective life sentence, my foot.

And the odds of Madoff making it to 90 may even be better than that. Let’s look at another document on the SSA’s web site — one that Sorkin somehow overlooked in the course of his legal research. This particular item is a 2007 paper by SSA researcher Hilary Waldron entitled “Trends in Mortality Differentials and Life Expectancy for Male Social Security-Covered Workers, by Socioeconomic Status.” The punch line of Waldron’s paper, as it applies here: Among the guys born around the year Madoff was (1938), the better-than-average earners who made it to their 70th birthday can expect to live until age 87. The lower-than-average earners likely have to settle for 83. Rich guys, in other words, live longer than poor ones. And guess what that means for Madoff.

Now, it may be true that the life-enhancing effects of Madoff’s wealth will wear off once he spends a few years behind bars. (Unfortunately, the SSA doesn’t provide longevity stats for wealthy crooks who are sent to prison at age 71.) And  it could be argued (in fact, Sorkin does) that  Madoff deserves some leniency for his recent apparent assistance in recovering for his victims some of the money he stole from them over the years. But don’t believe that Madoff, a dozen years from now, will be at death’s door. A healthy skepticism about the state of his future health is in order.

Do recessions ruin friendships? That’s the premise of an interesting, if rather depressing, post by Emily Bazelon on the XX Blog. Class differences can wreak havoc on relationships even in good times, she notes, in all sorts of subtle and not-so subtle ways: Inviting someone to dinner at a fancy restaurant can be tricky if you don’t know whether he or she can afford it. (You may recall the movie Friends With Money, starring Jennifer Aniston as the friend without.)

“We often sidestep relationships in which spending habits don’t match up exactly,” Bazelon writes, “to spare ourselves feelings of inadequacy or insensitivity, those awkward breaches that make intimacy feel like work.”

But recession — and its concomitant layoffs, pay freezes and general economic disquietude — can upset even these carefully-calibrated relationships. When one friend loses a job, she notes, “the sudden uneven footing isn’t easy to negotiate.” Quoting from numerous — sometimes sad, sometimes bitter — emails she got on the subject from her readers, Bazelon sketches out the “collateral damage” the recession has inflicted upon relationships.

One reader moved into her parents’ house to help them pay the mortgage after her dad’s salary was cut; her friends back where she used to live blame her for the new distance (literally) in their relationships. Another reader lamented the loss of “the accidental friendships of proximity” she’d had at her former job, which she lost in the spring.

Of course, such friends are practically the dictionary definition of “fair-weather friends.” Unfortunately, as I think Bazelon’s article makes pretty clear, virtually everyone has casual friends who fit into that category; it’s just that in good times we have the luxury of pretending that they’re something more.

Even worse, Bazelon notes. the hard times are straining even the closest of friendships: It’s hard to find things to talk about when one person’s life is a mess and the other’s is going swimmingly.

If all this has made you feel broke and lonely, I’d recommend you not read this blog post about a study finding that those with the most friends at school ended up making the most money as adults, with each “extra friend” adding an extra 2% in salary.

Has the recession put a strain on your friendships?

Convert some of your retirement savings into a lifetime annuity and you could snag a big tax break, if a new bill recently introduced in the House sees the light of day.

The rationale behind the Retirement Security Needs Lifetime Pay Act (H.R. 2748) is that we are going to screw up withdrawals from our retirement accounts and run out of money way too soon. Indeed, more than 40% of respondents to a MetLife survey said a 10% annual drawdown of their retirement savings seemed on target. But that aggressive pace would deplete your retirement funds in under 10 years; given longer life expectancies, it’s prudent to aim for a retirement income stream running for at least 20 years, and preferably 30. (In fact, the universally accepted initial annual withdrawal rate to ensure your money will last as long as you, is 4%.)

So that brings us to the new legislation introduced by Reps. Earl Pomeroy (D-N.D.) and Ginny Brown-Waite (R-Fla.) that holds out a nice tax carrot to get us to convert some of our lump sums into annuities that will provide a lifetime income stream. The idea is to get us to  create our own old-fashioned pension plans that deliver steady payouts. Key provisions of the bill include:

•    You will be allowed to exclude 50% of annual annuity payouts from a non-qualified plan (one you invested after-tax dollars in) from taxable income. The annual maximum exclusion would be $10,000.
•    You will be allowed to exclude 25% of annual annuity payouts from a qualified plan (401(k), IRA and other tax-deferred accounts) from taxable income.

The bill also creates a tax incentive to purchase longevity insurance, an annuity usually structured so it doesn’t start paying out until you’re in your eighties. (In return for that delay of gratification, you get higher annual payments than you would from annuities that start paying earlier.)

In 2005 Pomeroy floated a similar idea (the more catchily-named Lifetime Pension Annuity for You Act) that never made it out of committee. But that was long before retirement security was threatened by a severe bear market and the bursting of the real estate bubble.  And according to academics who studied the 2005 version, the tax breaks would help to reduce the cost of annuities (by getting more folks to buy ‘em) and wouldn’t be a huge hit for Treasury’s coffers. Then again, back when the study was conducted we didn’t have massive deficits to pay for, so any hit to future tax revenue may be a tough sell in Congress today.

And what about you? Would a tax break entice you to consider converting some of your retirement savings into an fixed annuity?

Whether or not the 401(k) is the nation’s best-designed retirement savings vehicle, for most people, it’s the only retirement plan they’ve got. Unfortunately, the most compelling feature about the 401(k) — the matching contribution from your employer — is disappearing fast. To save money, one-quarter of U.S. employers have eliminated matching contributions to employee 401(k) retirement plans since September, according to a recent survey of senior finance and HR executives by CFO Research Services and Charles Schwab.

Just how much does a company save by eliminating that benefit? Hewitt Associates ran the numbers in an April survey. For a company doing the typical match (50 cents for every dollar an employee contributes up to 6% of pay), the cost savings is about $1500 per worker.  That can add up to a lot — anywhere from $2 million for a small company to $25 million for a large firm, Hewitt says.

This isn’t a new play. In past downturns, companies have been quick to cut their 401(k) matching contribution and have later restored the benefit when the economy improves. But that move takes a big toll on workers’ bottom lines at a time when they can least afford to take another hit to their retirement savings. Even a short-term halt in that contribution can have a long-lasting negative effect on your retirement savings. That’s because once the match is suspended, many employees reduce their own 401(k) contributions or even stop contributing to their plan entirely. As a result, employees’ retirement savings shrink by thousands of dollars. For example, younger workers earning $50,000 a year who contribute 6% of their salary will have $16,000 less for retirement than what they would have had if their employer hadn’t suspended their match for one year. That loss jumps to $48,000 if employees stops contributing during that year as well. While they may eventually start saving in their 401(k) again, Hewitt finds even a hiatus in savings of just a few years can deplete retirement savings by hundreds of thousands of dollars. For example, a younger worker earning $50,000 a year who stops contributing 6% of his or her salary for five years can have up to $150,000 less for retirement.

Clearly, just because your employer no longer kicks in to your retirement plan doesn’t mean you should stop too. Remember, your 401(k) is still a pretty good deal even without a company match. You get a big tax advantage by putting pre-tax dollars away for retirement, which lowers your current taxable income. And you don’t pay taxes on the gains in your plan until you begin withdrawing the money at retirement, which effectively gives you a higher after-tax rate of return than if you were in a taxable investment account. Sure, you can get similar tax advantages with a Roth or deductible IRA but you can only sock away $5,000 a year with those. With a 401(k), you can save up to $16,500 pre-tax in 2009. You can’t discount the convenience of having your retirement investments taken directly out of your paycheck either.

As for your employer, Hewitt suggests some other actions for companies to take to cut costs before slashing their company matches, including shopping around for funds with the lowest expenses and getting rid of costly printed materials which duplicate information found on company  websites. For a thoughtful take on how 401(k) plans can be improved, read this piece by my colleague Penelope Wang.

According to two leading surveys of our collective financial mood we have been  feeling less pessimistic these days. The latest Reuters/University of Michigan consumer survey for June  shows a slight uptick to 69 from 68.7. And at the end of May the Conference Board Consumer Confidence Index clocked in with another strong gain, rising to 54.9 from 40.8 in April. Now of course, that’s still far from optimistic; back in October 2007 when the stock market hit its peak, the Conference Board survey registered 95.2; so we’re still about 45% below our most recent confidence high.

Given that our spending is a key green shoot, our confidence matters big time. And though well off the highs, the trend toward more confidence is good news.  But we could be in line for a relapse. Just in time for summer drive time, the average price of gas is up to $2.69 a gallon (for regular) , a 65% rise from its Jan ’09 level, and a full 10% more than what we paid over Memorial Day weekend.  Tom Kloza, chief oil analyst at the Oil Price Information Service, noted in a recent blog post that we’re now spending $1.01 billion a day for gas, compared to $600 million or so at the beginning of the year.  The question of whether that starts to impact consumer confidence and spending depends on your frame of reference. Yes, prices are a lot higher today than they were in January, but they are also way below the July 2008 peak of  $4.11 a gallon. No one is predicting $4 a gallon — at least not anytime soon — but nor are we going to see a return to $1.65 a gallon (the average winter low) either.

The recent uptick in mortgage rates is also causing wallet pain for potential refinancers (the bulk of the market right now). Two weeks ago, when the 30-year fixed-rate mortgage suddenly spiked from 5.23% to 5.45%, the hope was that the Federal Reserve would kick into high gear to push rates back down. ) So far, no go on that front. The 30-year fixed rate has yet to fall back much; after hitting 5.7% last week it has now eased a bit to 5.5%; but that’s still about  70 basis points  higher  than in April. Refinance at today’s rate and you’ll end up owing about $1,500 more a year in mortgage costs (on a $300,000 loan)  than someone who closed the deal back in April.

And it’s not as if we’re banking on rising incomes to cover these rising costs; according to that recent Conference Board survey, just 10% or respondents said they expect their income to increase  in the coming months.  So how’s your confidence faring these days?