2012: Deploy It or Return It

Despite the limping economy, corporate balance sheets hold record levels of cash, and interest rates promise to remain low through 2012. Thanks to weakening stock prices, this scenario behooves a “deploy it or return it” mentality from shareholders according to a mergers & acquisition specialist at JP Morgan in a recent cnnMoney article. Thus in 2012 we may see an increase in share buybacks, dividend enhancements, and merger/acquisition activity as a means of generating higher returns to shareholders.


[CLICK HERE to read “Merger 2012: The year of the hostile takeover;” December 30, 2011.]


As corporations look to invest capital they will look to credit vehicles to do so. In today’s environment, coupon yields provide reliable income and are further up the food chain in terms of capital structure – they also tend to offer significantly higher payouts.

The decision to buy individual bonds or bond funds has a lot to do with your investable net worth. Buying individual bonds requires a higher investment, but the larger the portfolio of individual bonds, the lower the overall cost. However, bond funds offer a viable alternative for investors with fewer assets available for their bond allocation.

[CLICK HERE to read “Corporate bond returns fall short of Treasurys” at; December 29, 2011.]


With earnings growth slowing down, the retail sector will need to do something to attract investors. That something, according to independent retail analyst Brian Sozzi, includes share buybacks and targeted capital investment – such as toward online operations. According to Sozzi, we’re more likely to see what he calls “larger, boring brands” deploying their cash via share buybacks and higher dividends. Companies like Macy’s, Kohls, Home Depot and Gap are all cash flush and pulling back on new store openings, which means they need to look at other ways to improve their return profile.  

[CLICK HERE to view the video report from, “Sozzi Sees Some Retailer Dividends, Buybacks;” December 29, 2011.]


Caution remains for the bank sector. In November, the Federal Reserve published its complete ruling that requires banks with assets of $50 billion or more to submit annual capital plans for the Fed’s review. That includes any plans for capital distributions, including dividend payments or stock repurchases. According to its press release, the purpose of the review is to “ensure that institutions have robust, forward-looking capital planning processes that account for their unique risks, and to help ensure that institutions have sufficient capital to continue operations throughout times of economic and financial stress.”

So far the Fed has denied requests from both Bank of America and MetLife Bank to increase dividend payouts to shareholders, subsequently leading to MetLife’s recent announcement that it intends to sell its bank depository business to GE Capital.

[CLICK HERE to read the Federal Reserve’s press release for their Comprehensive Capital Analysis and Review (CCAR) stress test in 2012; November 22, 2011.]

[CLICK HERE to read “MetLife Ditches Bank Business, Sells $7.5B In Deposits To GE Capital;” at; December 27, 2011.]

If you’re considering adding some income-yielding investments to your portfolio in 2012, give us a call for analyses and recommendations.



401(k) Status Update

The battle rages on. Legislators are loath to extend the payroll tax cut when there is no formalized plan in place to reduce government spending. The fact is, American taxpayers will have to absorb the cost of the government’s excess deficit either through more taxation or reduced entitlement programs…or both.


One area getting a good look is the tax-deferred status of employer-sponsored 401(k) contributions. That’s the bad news – and we’ll get that in a bit. But first, some good news.


Spread the Wealth

There is recent evidence that employers are actively supporting worker’s retirement savings by restoring plan contributions that were suspended or reduced since the beginning of 2008. In fact, about 12% of plan sponsors have increased their employee contribution match or added a matching contribution. Many are revamping or adding to their investment options to strengthen performance potential for their plans’ returns.1


Apparently, this resurgence is unprecedented. So much so that the president of the Plan Sponsor Council of America observed that he has “not seen anything like this in 25 years of working with plan sponsors.”


[CLICK HERE to read a press release on the findings of the Plan Sponsor Council of America’s latest survey: 401(k) and Profit Sharing Plan Response to Current Conditions; November 29, 2011.]


More Good News: The Message to Save is Resonating

According to the same survey, about 40% of employer plans reported an increase in plan participation, up from a mere 3.9% increase in 2009.1 And here’s an interesting tidbit: 23% of Gen X (born 1965-1980) and 25% of Gen Y (born 1980s-90s) and are funding both a 401(k) or 403(b) plan and an IRA – compared to only 16% of baby boomers.2


[CLICK HERE to read more about the results of the TD Ameritrade Survey from; December 20, 2011.]


401(k) Contribution Tax Debate

One of the tax issues up for debate is the deductibility of employee 401(k) contributions. If that were to change, 401(k) investments could be taxed both before and after taxes, just like other taxable investments. Chances are this would apply only to new contributions – so any balance already in your plan would be taxed only at distribution.


The proposal has lots of opponents, as you can imagine. The Employee Benefit Research Institute (EBRI) reports that such a move would cause many lower-income workers to either decrease or discontinue contributions altogether. High-income earners wouldn’t be happy about it, either. It is also commonly noted that while the government may generate short term revenue by removing the tax deduction, it would likely see a decrease in long term revenues because lower contributions are likely to yield lower long-term investment returns (and, thus, taxable amounts) when distributions are made in retirement.


Another proposal recommends making employer contributions taxable and replacing the employee current 401(k) deduction with a flat-rate refundable credit (of either 18% or 30%) deposited directly into the employee’s account. This would save money for the government but cost employers more – many may even stop offering a retirement plan as a result.


[CLICK HERE to read “The Next Big Threat to Your 401(k): A Tax Break Shake Up;” at AOL’s; September 22, 2011.]


[CLICK HERE to read the Brooking Institution’s proposal to Restructure Retirement Saving Incentives; September 8, 2011.]


One of the advantages defined contribution plans (401k) offer over defined benefit plans (pension) is that Americans are better able to control their investments and their future, rather than depending so much on an employer. If you’d like to explore other ways you can save and invest for retirement with less reliance on the government or your employer, please give us a call.



1 Plan Sponsor Council of America; 401(k) and Profit Sharing Plan Response to Current Conditions; November 29, 2011.

2 TD Ameritrade Survey; December 20, 2011.




Getting on with Our Lives

Who would grow up in any other part of the country thinking that what they really want in life is to move to Bismarck, North Dakota? Thanks to a booming oil business fueling the local economy, more than 16,000 jobs were available in North Dakota this fall, paying substantial salaries to attract workers. And that’s just in the oil business. Everyone from truck drivers to fast food servers could get jobs paying $15-plus an hour throughout the western part of the state.

As a result, unemployed Americans flocked to North Dakota in droves – so much so that a new airplane hangar had to be built in Bismarck to accommodate the flight demand. Housing became scarce, leading to a 6% increase in residential home prices while the rest of the country continued its free fall. That’s for those lucky enough to find housing – many people who found jobs camped out in the local Wal-Mart parking lots. Now there’s a lifestyle change you don’t see very often: Cash-rich and homeless.

[CLICK HERE to read the “Unemployed Flock to North Dakota; What’s Their Secret?” at; October 19, 2011.]

[CLICK HERE to read the “Double your salary in the middle of nowhere, North Dakota;” at; October 20, 2011.]

Second Careers
By the time the millenium rolled around, many baby boomers thought they were all set. Then we experienced two recessions in a 10-year period, and that set many people backward on their road to prosperity or, at very least, a comfortable retirement. Due to the recent economic “correction”, nearly one in three 55+ year-old participants in an AARP study said they were currently unemployed or had been laid off in the three years of the study. Thirty-three percent planned to delay retirement.1

It’s not easy to find a job once you’re over age 50. However, sometimes adversity can bring out the best in people. Whether out of financial need or a determination not to finish one’s career with a layoff, many seniors in the US started up their own business in the midst of the recession in order to reboot their retirement resources (and dreams).

[CLICK HERE to read stories about late career entrepreneurs: “Seniors mind their business” at; December 16, 2011.]

Marriage and Children
Pew Research recently published findings that the number of new marriages in the US declined by 5% between 2009 and 2010 – a sharp one-year drop. Disinterest in marriage may not simply be an outcome of the poor economy, since marriage has been on the decline since the 1960s, but as fewer young adults are employed it’s a safe bet that there is some impact. By the same token, the Russell Sage Foundation published a study showing a clear correlation between increases in unemployment and lower birth rates.

[CLICK HERE for a summary of the new analysis from Pew Research Center; December 14, 2011.]

[CLICK HERE to read excerpts from the Russell Sage Foundation study, “The Social Effects of the Great Recession”; December 16, 2011.]

We appear to be in one of those situations in which we might ponder whether the chicken comes before the egg. Do we wait for a stronger economy or should we start up a new business, get married, have babies, and just plain get on with our lives? This, of course, would ultimately help stimulate economic growth.

If you’ve been pondering these questions yourself, give us a call to assess your financial situation and see if we can’t get you moving forward with some of your life choices.

 1 AARP Public Policy Institute; “Insight on the Issues” May 2011.



Everybody Wants to Rule the World

Ever since Christopher Columbus discovered and introduced the New World to, well, the Old World, America grew and became a world leader. We lead the world in lots of ways, not just in capitalism. We made blue jeans popular. Rock and roll. And Hollywood is one of our most thriving exports.

So everybody else wants to be just like us – live the coveted Western lifestyle. Though years of late have robbed that lifestyle of some of it allure, it does endure and probably always will but for one simple reason: the grass is always greener somewhere else.

In emerging countries, there are some two billion people who aspire to work the same types of jobs, live in the same kinds of houses, eat the same (albeit unhealthy) food, wear questionably distasteful or inappropriate clothes, and drive the (oft times) gas guzzling cars we own. America is all about excess; the fast food value meal an emblem of the American Dream. Ironic, isn’t it, that one of our most iconic fast food chain symbols is a crown.

Not that aspiring to our lifestyle is a bad thing. On the contrary, demand from other nations will help fuel our economy via our global companies helping to provide new urban infrastructure – roads, bridges, schools, hospitals and energy grids for modern cities in emerging countries.

Rebranding: Growth Markets

It’s been 10 years since Jim O’Neill, then an economist and now chairman of Goldman Sachs Asset Management, coined the term BRIC as a reference to Brazil, Russia, India and China. The term clustered countries he believed offered strong growth prospects, and became a mainstay phrase that focused attention on emerging markets.

Recently, O’Neill published a book (The Growth Map: Economic Opportunity in the BRICs and Beyond; Portfolio Hardcover; December 8, 2011) that provides a BRIC analysis from the last ten years. The book also refers to the “Next Eleven” countries – Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, Philippines, South Korea, Turkey, and Vietnam – to drive global change.

O’Neill also suggests that we should rename emerging countries (or “rebrand” them, as marketing gurus would call it) to call them “Growth Markets.” By this new definition, a “Growth Market” would be regarded as “one that is likely to have favorable demographics and achieve rising productivity going forward.” Furthermore, a Growth Market would include any economy outside the Developed World that is at least 1% of current global GDP.

[CLICK HERE to read the Financial Times article, “Brics at 10: not dead yet”; December 5, 2011.]

[CLICK HERE to read the Goldman Sachs Asset Management fact sheet, “It is Time to Re-define Emerging Markets;” January 31, 2011.]

[CLICK HERE for a video interview with Jim O’Neill of Goldman Sachs Asset Management; April, 2011.]

Perhaps a rebrand is a good idea for emerging markets. For one thing, more than half of the world’s total stock market capitalization lies outside the United States, so eliminating the reference to “emerging” may help mediate the stigma attached to investing in these potentially high growth (and yes, high risk) economies.

But another reason is because these countries – while not full-grown – have certainly emerged from infancy. In fact, the last few years have showed them off, economically speaking, like debutantes. And as teenagers are apt to learn, grownups don’t know everything. There’s a lot we can learn from these countries. Their cultural dishes typically boast more nutrition and less fat than the average American holiday dinner. They tend to drive smaller cars, ride bikes, and get more exercise simply as a means of transportation. And in China, the average household savings rate is up to about 26%.

[CLICK HERE to read an interview with Sheldon Garon, Princeton Professor and author of Beyond Our Means: Why America Spends While the World Saves; December 6, 2011.]

Sure, maybe everybody does want to rule the world, but depending on the way you look at it –  there are no clear winners. You can start by just ruling your own world. Please contact me if you’d like to engage in a full financial review and analysis to help you start off your New Year with a stronger financial plan.



Jobs Improve, Stocks Happy

Last week we received some good news. The unemployment rate was reduced significantly to 8.6% (the lowest in more than a year and a half) amid expectations that it would remain above 9.0% through the 2012 election year. While the government cut 20,000 jobs in November, private businesses added 140,000 jobs.

The job market opening up is all the more important to the nation’s young adults, considering that 16- to 24-year-old employment has dipped as low as 47%. However, nearly two-thirds of the rise in employment in the past three months is attributed to the hiring of young folks, albeit perhaps those with low-paying wages. The retail sector recently added 50,000 jobs and around 22,000 jobs were added to the restaurant industry. Job report numbers are adjusted to account for seasonal trends, so these new jobs are not considered primarily a result of holiday hiring. This growth in consumer-oriented industries could be a reflection of resurrected confidence and – something we all could really use – hope.

CLICK HERE to read the Bureau of Labor Statistics jobs reported released on December 2, 2011.

CLICK HERE to read “Young workers getting hired again” at, December 1, 2011.

The stock market, for one, appeared quite happy with the news. Blue chip stocks added close to 800 points by the end of last week and are now up by more than 3% for the year. The S&P 500 and NASDAQ have both narrowed year-to-date losses to 1%.

While it appears that the stock market has been keeping lockstep with breaking news concerning the European debt crisis, it’s possible that Europe’s woes may be just smoke and mirrors for stock market investors. LPL Financial recently published year-end research and commentary that – stepping back from the day-to-day and week-to-week trading – reveals a different, longer-term pattern of stock market performance. The report demonstrates that the U.S. stock market has closely tracked real-time economic data as measured by unemployment benefits reports.

CLICK HERE to read Outlook 2012 by LPL Financial Research, November 2011.

Perhaps because hope tends to accompany the holiday season, December has historically been a rewarding month for stock investors. In fact, 18 of the last 21 Decembers have produced a positive total return for the S&P 500. The average December performance since 1990 is a gain of +2.1% – the best of any month – according to BTN Research.

Recent signs are positive. We’re seeing real movement to reach a bipartisan budget agreement in Congress, despite the disappointing outcome of the Supercommittee’s efforts. Republican opposition may be ready to extend the payroll tax break by the end of the year in exchange for a compromise to reduce expenses.

The trends for the rest of the year are clear: Shop. Invest. Hope. Please feel free to contact me to discuss opportunities arising from the recent news.



Short on Patience; Long On Bonds

The failure of the bipartisan supercommittee to reach an agreement on ways to reduce the nation’s super debt probably came as a surprise to few. Regardless of the outcome, we already knew that the US may need to come under prohibitive austerity measures for the foreseeable future.

In Germany, the one country in the Eurozone that exhibited strength and outperformance while the rest of the region floundered, announced back in June of 2010 its four-year plan of cutbacks. Those plans included “trimming welfare allowances for jobless parents, eliminating 10,000 civil service jobs over four years, and reducing the military, among other measures.” Not surprisingly, many opposed the reductions at the time, calling them unjust and shortsighted.

However, in the first half of 2011, Germany proved to be one of the best performing markets in the world, and the country’s unemployment fell to a 20-year low. Perhaps, despite the tough times ahead of us, austerity could mean good news for investors.

CLICK HERE to read the June 7, 2010 article at entitled, Will German Austerity Help or Hurt the Global Recovery?

Given that the upcoming decade will likely be characterized by deleveraging* and slow growth, many investment analysts are indicating that corporate bonds could provide a better risk/return ratio than equities. In fact, fixed-income securities posted strong relative returns over the past decade, with Treasury bonds gaining 6.25% and corporate bonds gaining 6.96% annually from December 31, 1999 to December 31, 2010 (as measured by the Barclays Capital Aggregate Treasury Index and the Barclays Capital Aggregate Investment Grade Corporate Bond Index, respectively).

Another advantage for bonds is their low correlation with stocks. High-quality bonds – such as investment-grade corporates and Treasuries – can help diversify your portfolio with the potential for gains when stocks take a dive. You can further diversify your bond allocation at the “sub-asset-class” level with a mix of holdings that includes corporate, government, municipal, foreign, and high-yield securities.

Bonds also offer the concept of “tax alpha” – the difference between the return of an investment portfolio that pays capital gains taxes versus one that does not. An apt comparison is that of the amount of your year-end bonus: Your boss tells you you’ve earned one amount, but the check you receive (after taxes have been withheld) is a much different story.

Hence the appeal of municipal bonds, wherein yields are shielded from federal and state/local taxes of the issuer. One way to improve the tax efficiency of non-muni bonds is by holding them in a tax-sheltered account, such as a 401(k), or variable annuity.

The earnings rates for Series I Savings Bonds and Series EE Savings Bonds issued from November 2011 through April 2012 were recently published. The rate for I bonds bought from November 2011 through April 2012 is 3.06%, and Series EE bonds issued from November 2011 through April 2012 will earn 0.60%.

CLICK HERE to read Fidelity Investment’s viewpoint on Bonds for growth investors, November 23, 211.

CLICK HERE to read the savings bond announcement, Public Debt Announces New Savings Bonds Rates at, November 1, 2011.

It’s important to understand how each type of bond is impacted by various economic scenarios, so fee free to contact me if you’d like to discuss enhancing your bond allocation for the coming year.

*To increase financial stability by paying off debt



A World of Opportunity

Warren Buffet is quoted as once saying that when the tide goes out, you find out which investors are swimming naked.1 In reference to the global economy, an analyst recently annotated that remark by saying that when the tide went out in 2008 – the Chinese had on a full wet suit.2


In other words, if it had not been for China and other emerging market (EM) countries, the world economy might be vastly worse off than it is today. When you consider estimated outlooks for growth for 2012, analyst numbers average out at around 1.8% for the US and 1.2% for the European Union. However, total global growth is forecasted at 3.9% – boosted by the 6.2% growth anticipated by the EM economies.


Currently two-thirds of the world’s economic growth is coming from EMs – not from the US and not from Europe. However, according to studies by Merrill Lynch, the average US investor portfolio has only 3% exposure to EMs. This suggests that US investors – despite our pessimism for both the US and European financial markets – are vastly underinvested in the markets that are responsible for a majority of today’s economic growth.


CLICK HERE to view video of the interview with global analysts at Merrill Lynch Wealth Management; November 2011.


One thing to bear in mind is that in recent years, it’s become evident that emerging market equities are inversely correlated to the US dollar. In other words, when the dollar strengthens, EM equities tend to decline. This is because a rising dollar drains liquidity from EMs as investors shift to dollar-denominated assets.


Currently, the dollar is strengthening, so it’s reasonable to assume that EM equities will continue to weaken. While this means that these securities are vulnerable to short-term moves, you can actually “hedge” this weakness with a traditional buy-and-hold strategy. According to recent analysis by Morgan Stanley Smith Barney (MSSB), while short-term volatility based on dollar momentum may influence price movements, it has little to do with overall stock fundamentals.


The MSSB report asserts, “We still expect EM economies to outperform the developed economies in terms of economic growth. This should keep capital flowing to the emerging markets.” Furthermore, EM markets do not have the debt burdens of more developed nations, and have more options for fiscal policy flexibility.


CLICK HERE to read Morgan Stanley Smith Barney’s On the Markets report for November, 2011.

An emerging markets portfolio manager at Fidelity Investments recently commented that, despite short-term concerns, emerging markets are supported by long-term favorable demographics, rapid urbanization, and rising levels of wealth that will lead to increased consumer spending. Furthermore, several EMs had already engaged in deleveraging at the government, corporate and consumer levels over the last decade, so they are currently better positioned than the developed world to prevail in this environment of uncertainty.

CLICK HERE to read Fidelity Viewpoints “Is the emerging markets ride over?” November 8, 2011.

This is not to say that pessimism about America’s future should overly influence your investment decisions. All foreign securities are subject to interest-rate, currency-exchange-rate, economic, and political risks, and these characteristics are all the more magnified in emerging markets.

Remember, too, that the US is still the biggest and safest bet in the world, and our markets have actually outperformed in 2011 relative to other contenders. Some of our most successful companies have healthier balance sheets now than ever and hold market share lead positions – offering tremendous investment opportunities for investors who have fled to cash and safety over the past couple of years.


However, if you’re wondering how to invest in the current economic environment, it may behoove you to embrace a more global perspective going forward. Seek out investment opportunities for growth, income and value where they currently exist – and many of them exist outside of the US. The following are a few guidelines to help you with this mindset:


  • Strike an appropriate balance between equities and debt in both emerging and developed markets
  • Evolve a buy and hold strategy to review your asset allocation more frequently, gear it toward a very specific goal and time horizon, and be vigilant regarding the transparency and reliability of your plan
  • Rebalance more often and use new cash (if possible) to shore up underweight allocations to avoid tax consequences
  • Broaden your mindset for different global asset classes, such as commodities, currencies, real estate, etc.

Please contact us if you are interested in discussing the broader world of opportunities you can invest in for your future.

1 Accessed 11/21/2011.
2 “The Great Global Shift: New World, New Rules.” October 18, 2011.




Speculating vs. Investing: We Have a Choice

It’s hard to remember a time when the securities markets fluctuated so rapidly and so reactively to headline news throughout the day. First of all, ten years ago we may have been able to receive news via 24-hour news channels and the internet throughout the day, but today’s media is far more omniscient and detailed. Our world is smaller now, more connected – so things that happen in lands far away that we may never have visited nor will ever visit sometimes have the capacity to rock our world, our investments, and the very security of our future.

How can news about Greece and Italy have so much impact on our 401(k)s, stock portfolios, and even short-term CDs we hold at a local bank? It does. We worked towards a global economy for so long, stringing together real-time wireless communications that span the earth in mere seconds, and now we’re left wondering if that was the right direction for our future. Is that progress?

The fact is, the potential for sovereign default in European countries can reverberate globally with a freeze on credit and short-term lending while stock market prices drop all over the world – and such financial woes will continue to create serious implications for the economy here in the US.

CLICK HERE to read the CNN article “Stocks Tied to Europe Hopes” and view video of Federal Reserve Chairman Ben Bernanke explaining the impact of Euro Zone default on US stocks (“We are not insulated from Europe”); November 11, 2011.

CLICK HERE to read “Week That Began With A Bang Ends with A Whimper” at; November 11, 2011.

The good news, of course, is that last week the Italian Senate passed austerity measures and Greece named its new Prime Minister. CNNMoney has a stunning graphic (see link below) on just how well the Dow reacted to this news last Friday.

CLICK HERE to view the CNN graphic and article “Stocks jump 2% on progress in Greece and Italy;” November 11, 2011.

It’s truly amazing just how much impact the global economy, European politics, and this generation of modern-day technology has on stock market prices and the earning potential of our investment portfolios. In some ways, a stock’s price movement may have no relationship at all to the company’s health or prospects.

Jack Bogle, the founder and former CEO of the Vanguard Group and a long-time proponent of indexed mutual fund investing, has recently sounded off on this phenomenon, saying that investing these days more resembles speculation. In fact, he recently spoke with Morningstar about the enormous volume of daily activity in today’s markets.

Says Bogle: “This is short-term speculation and all its follies, and long-term investment with all its wisdom is kind of back in the rumble seat there somewhere forgotten. So my advice to an investor would be, first decide whether you’re an investor or speculator, and if you are an investor, I’d try to ignore all this noise.”

CLICK HERE to view the Morningstar video report (and transcript): “Bogle: Speculation is in the Driver’s Seat;” August 12, 2011.

Perhaps it is time to get back to the basics of being an investor – not a speculator. Indeed, if you’ve been trying to roll with the punches lately, attempting to benefit – or flee – from short-term activity, it may behoove you to take a more long-term look at your current holdings. Depending on the time you still have in the “growth” phase of your financial life, and the longer you have until retirement, the more you can hold on to that long-term perspective for the future. If so, please contact me to schedule a comprehensive evaluation of your portfolio and help you create an asset allocation strategy designed to meet your long-term personal goals.



Yesteryear’s Retirement Strategies May Not Stand the Test of Time

According to findings from a pre-retiree study this year,1 one-third of Americans age 55+ say their financial assets have not yet recovered to pre-recession levels. If that isn’t bad enough, many tried-and-true retirement income planning strategies employed by the last generation of seniors no longer appear viable.

Until interest rates start moving back up, the age-old income strategy of laddering fixed rate bonds or CDs is taking a back seat. As an article at recently pointed out, “retirees planning on using that strategy going forward may be sorely disappointed if five-year CD rates stay around 2%.”2

1 (CLICK HERE to read highlights from the SunAmerica Retirement Re-Set Study, July, 2011)

2 (CLICK HERE to read “Five Retirement Strategies that No Longer Work” at, September 1, 2011)

Other retirement income strategies of yesteryear have fallen by the wayside as well, thanks to national economic  problems during the first decade of the new millennium. For example, living off the equity in your home via a home equity loan or line of credit, or even a reverse mortgage, may no longer be feasible. Even for retirees who have paid off their mortgage, you may not get as much return on the investment in your home as you were counting on.

The same goes for selling your home for retirement income – assuming you can find a buyer. The good news is that properties in popular retiree states like Florida and Arizona are selling for a song right now. One option to consider is renting your pre-retirement home and fleeing south for retirement. If you rent your property now and sell it up to three years later, you can still benefit from the $250,000 capital gains tax exclusion if you lived in the home two of the previous five years (up to $500,000 if married filing jointly).

In light of today’s economic hardships, new strategies have gained popularity to help today’s pre-retirees and retirees subsidize their future income. According to an article in The Wall Street Journal Online3 recently, some of those strategies include annuities and “payout funds” – which are basically mutual funds that automatically distribute a level percentage of your account’s market value (4% tends to be a common distribution) on a regular basis, allowing the balance to remain invested in stock and bond markets.

Everyone’s situation is different, but the general garden variety wisdom today tends to advise utilizing a combination of different strategies that include annuities, investments and real estate. And don’t rule out bonds by any means. In fact, long-term government bonds have actually performed better than the S&P 500 over the last 30 years: 11.5% versus 10.8% a year, on average. 4

3 (CLICK HERE to read “Funding the Post Pension Retirement” at The Wall Street Journal Online, October 22, 2011)

4 (CLICK HERE to read “Say what? In 30-Year Race, Bonds Beat Stocks” at, October 31, 2011)

If you’d like to learn more about today’s retirement income planning strategies, please contact us today!.



The Psychology of Planning & the Ostrich Generation

The Wall Street Journal recently published an article dubbing many of today’s preretirees the “Ostrich Generation” – observing that folks are sticking their heads in the sand instead of proactively working on a retirement plan. In fact, according to the Employee Benefit Research Institute (EBRI), only 42% of Americans report that they’ve tried to calculate how much money they will need to save for retirement. It’s no wonder, of course, given the volatility in the stock market, low interest rates in the bond market, and the general state of the economy.

However, it does seem that now is a good time for folks to at least figure out how much money they’ll need to live on in retirement, and perhaps take a close look at all the retirement income strategies currently available. The current state won’t last forever – but similar situations may come around again before you retire – so it’s a good idea to take today’s lessons and apply them to help protect yourself from another financial retreat in the future. Like during retirement.

(CLICK HERE to read “Don’t Join the Ostrich Generation” at The Wall Street Journal, September 17, 2011)

(CLICK HERE for highlights of the EBRI’s 2011 Retirement Confidence Survey, March, 2011)

Experience shows that the more we learn about something, the more confident we grow about that area. Even though figuring out how much you will need may feel like an insurmountable number, the empowerment of the exercise may encourage you to become proactive. For instance, there are several strategies you can employ right now that don’t require that you invest for future growth. Many of these are outlined in the referenced Wall Street Journal article, such as:

  • Planning to work part-time during retirement – which can also help you stay active and engaged
  • Purchasing a long-term care policy – premiums are cheaper the earlier you buy a policy
  • Delaying Social Security – if you will soon be eligible for benefits, wait until age 70 and you’ll receive 132% of the full retirement age monthly benefit
  • Social Security selectivity – live on one spouse’s benefit and let the other’s kick in later at the higher percentage to help out with the rising cost of living and later-in-life health care costs

The point is, there is something you can do now: Make a plan. Granted, you’ll need to continue tweaking that financial plan for the rest of your life because things change – as we all well know. But the mere process of creating a financial plan is empowering in and of itself. It can help you feel more positive about the future – and your ability to have an impact on even unforeseen events. Creating a plan can also be more motivating than you might expect – finding areas to cut back in current living expenses and redirecting those funds towards your retirement.

Please contact me if you feel that you, too, might have had your head in the sand too long. I’d be happy to help you review your current strategy and create a sound approach for your future retirement.