Financial Strategies for the New Single Majority – Bloomberg 09-09-14

Salient to Investors:

  • More than half of US adults are single versus 37% in 1976.
  • Singles need bigger emergency funds more insurance protection.
  • Couples who wait to have kids in their 30s end up with three big financial burdens all at once: retirement planning, saving for a house and saving for college.
  • People are less likely to be declined long-term care insurance coverage in their late 40s and early 50s.
  • The overall divorce rate has doubled since 1990 for people over age 50.
  • Eric Klinenberg found that many older singles, especially women, were just as happy and more social than married peers.

Read the full article at http://www.bloomberg.com/news/2014-09-09/financial-strategies-for-the-new-single-majority.html

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Can We Ever Really Retire? Why Americans Stink At Math – Seeking Alpha 07-28-14

Salient to Investors:

George Schneider writes:

  • The trend away from diversification of portfolios into just a few stocks plus Americans’ growing insufficiency in math skills are leading Americans towards dependency on government benefits rather than self-reliance in retirement.  Two-thirds of 4th and 8th graders failed the thermometer math proficiency test in 2013.
  • The average investor retires with $50,000 in assets today and would produce an annual total retirement income of about $24,000 when added to the  average of $20,000 in joint social security, and excluding any private pension. A 30% cut in dividend income on the assets would reduce that retirement income to $22,800, and a 30%-50% average market collapse would probably cause the retiree to liquidate his portfolio, leaving only Social Security income.
  • Diversification keeps most investors from losing unacceptable amounts of capital and dividend income for retirement needs.

 

Read the full article at https://mail.google.com/mail/u/0/#inbox/14782876c37465bb

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Five Reasons Why You’ll Never Be Rich And One Reason Why You Already Are – Personal Capital May 2014

Salient to Investors:

5 habits that prevent you from becoming wealthy:

  1. Being a “C” student who thinks they deserve an “A” lifestyle
  2. Inability to delay gratification by taking on debt. Credit card interest at 15%+ leads to financial failure –  even Warren Buffet has not returned greater than a 15% annual compound return on his investments.
  3. Spending too much on a car.
  4. Unwillingness to go the extra mile at work. Never take your work for granted – come in early, leave late, frequently ask colleagues if they need help, and be proactive with new responsibilities.
  5. Saving as if Social Security or a pension will support you. In its current state, Social Security can only provide 70% of benefits in the next couple of decades, while pensions are disappearing fast. Max out your 401(k), or save at least 20% of your after tax income.
  6. Not building enough passive income; like from dividend yielding stocks, REITs, rental properties, tutoring, starting a sideline business, earning royalties, and building a CD ladder.

If you have a net annual salary of $30,000 a year then you are in the top 1.23% of richest people in the world.

Read the full article at https://blog.personalcapital.com/financial-planning-2/reasons-why-youll-never-be-rich-and-one-reason-why-you-already-are/?utm_source=Dianomi&utm_medium=CPC&utm_campaign=five_reasons_why_you%27ll_never_be_rich&utm_creative=320x400_pc_dianomi_wm

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Tax Break for IRA Conversion Lured 10% of Millionaires – Bloomberg 01-03-14

Salient to Investors:

The IRS said conversions from regular IRAs to Roth retirement accounts increased more than nine times in 2010, rising to $64.8 billion from $6.8 billion in 2009, and the first time Roth conversions were greater than contributions. More than 10 percent of IRA holders with annual incomes exceeding $1 million converted.

A 2006 law set 2010 for ending a $100,000 income limit on Roth conversions, with no ceiling on conversions if an investor has multiple IRAs and no cap on the amount that can be shifted.

Thomas Rowley at Invesco said wealthy investors could better manage their tax liability in retirement and pass the Roth accounts to heirs free of income tax – it is the cheapest estate planning you can find and you are paying the taxes for these beneficiaries.

Read the full article at http://www.bloomberg.com/news/2014-01-03/tax-break-for-ira-conversion-lured-10-of-millionaires.html

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The IRS said conversions from regular IRAs to Roth retirement accounts increased more than nine times in 2010, rising to $64.8 billion from $6.8 billion in 2009, and the first time Roth conversions were greater than contributions. More than 10 percent of IRA holders with annual incomes exceeding $1 million converted.

A 2006 law set 2010 for ending a $100,000 income limit on Roth conversions, with no ceiling on conversions if an investor has multiple IRAs and no cap on the amount that can be shifted.

Thomas Rowley at Invesco said wealthy investors could better manage their tax liability in retirement and pass the Roth accounts to heirs free of income tax – it is the cheapest estate planning you can find and you are paying the taxes for these beneficiaries.

At 61 She Lives in Basement While 87-Year-Old Dad Travels – Bloomberg 12-17-13

Salient to Investors:

The median net worth for US households headed by boomers aged 55 to 64 was almost 8 percent lower, at $143,964, than those 75 and older in 2011. Boomers lost more than other groups in the stock market and housing bust of 2008, and many also lost their jobs in the aftermath at a critical point in their productive years.

An AARP Public Policy Institute survey found that over half of those aged 50 to 64 expect their standard of living in retirement will be worse than their parents.

Alicia Munnell at BostonCollege said baby boomers are the first generation without the safety net of pensions and other benefits their parents have, and face a much more challenging old age.

Boston College said the median 401(k) balance for households headed by baby boomers is $120,000.

37% of the elderly and less than 10 percent of boomers in the US collect pensions and that number is quickly shrinking.

Fidelity Investments said hospital, doctor and medicine expenses for a 65-year-old couple retiring this year are expected to be $220,000 over the course of their lives, as company-paid retiree health benefits disappear and the cost of Medicare rises.  

Read the full article at http://www.bloomberg.com/news/2013-12-18/at-61-she-lives-in-basement-while-87-year-old-dad-travels.html

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The median net worth for US households headed by boomers aged 55 to 64 was almost 8 percent lower, at $143,964, than those 75 and older in 2011. Boomers lost more than other groups in the stock market and housing bust of 2008, and many also lost their jobs in the aftermath at a critical point in their productive years.

An AARP Public Policy Institute survey found that over half of those aged 50 to 64 expect their standard of living in retirement will be worse than their parents.

Alicia Munnell at BostonCollege said baby boomers are the first generation without the safety net of pensions and other benefits their parents have, and face a much more challenging old age.

BostonCollege said the median 401(k) balance for households headed by baby boomers is $120,000.

37% of the elderly and less than 10 percent of boomers in the US collect pensions and that number is quickly shrinking.

Fidelity Investments said hospital, doctor and medicine expenses for a 65-year-old couple retiring this year are expected to be $220,000 over the course of their lives, as company-paid retiree health benefits disappear and the cost of Medicare rises.  

Learn from Retirement Lessons – Blackrock

Salient to Investors:

Blackrock report the top four retirement regrets of retirees:

  1. 36% would have started saving earlier, contributing to 401(k) plans sooner and at maximum levels
  2. 32% would have spent less
  3. 21% would have worked longer
  4. 12% would have hired professional financial advice

Read the full article at http://www2.blackrock.com/us/individual-investors/insight-education/investor-pulse/finding-5-learn-from-retirement-lessons?cmp=Investor%20Pulse&chn=ppcsyn&c=dianomi&kw=Finding%205&utm_campaign=Investor%20Pulse&utm_medium=cpc&utm_source=dianomi&utm_term=Finding%205

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New strategy for equity investing during retirement ignites debate – InvestmentNews 12-05-13

Salient to Investors:

Wade D. Pfau at The American College and Michael Kitces at Pinnacle Advisory Group said:

  • A U-shaped retirement plan – 20% to 40% in equities, with a gradual increase of 1% per year to a maximum 60% to 80% allocation to stocks by the end – is preferable to the standard downward slope of equity allocation as a client ages.
  • Greater equity exposure in the later years of retirement actually help, especially when returns in the early retirement years are poor and favorable returns are crucial to allow the portfolio to last.
  • The first 15 years of retirement are crucial. A strong market early in retirement will put retirees far ahead of their goal, enough to buffer the effects of a bear market later in retirement A poor market in the first 15 years means the portfolio will need strong returns in the second half of retirement to ensure it lasts.

John  at Morningstar said a starting point of 30% equities at retirement rising to 60% with a 4% withdrawal rate leads to only slightly better outcomes than a fixed mix of 45% stocks and 55% bonds. Rekenthaler said a 25% average weighting in stocks in retirement, beginning with 10% in stocks and ending with 40% would not fare as well as a portfolio that starts retirement with 40% and declines to 10% – a 25% equity position is the current status of most retiree portfolios. Kitces said this strategy does not work in scenarios that have 50/50 chance of catastrophe anyway.

Read the full article at http://www.investmentnews.com/article/20131205/FREE/131209942

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Nobel laureate: Everyone should have a financial adviser – InvestmentNews 12-05-13

Salient to Investors:

Nobel Laureate Robert Shiller said:

  • People make better decisions with financial advisers.
  • A lack of good financial advice was one of the problems that led to the financial crisis. Many Americans went into unsupportable debt to buy homes, which a good financial adviser would not have let them do.
  • Financial advice is particularly critical for low to moderate income families, on a par with medical advice, and should be made available to those without the resources to pay for it.
  • The government should compensate advisers who help lower-income people with financial problems.
  • Tax deduction for some investment costs subsidizes the wealthy because low-income Americans do not itemize deductions.
  • Investor overconfidence can put advisers in a tough spot because people do not like to be told they are wrong.
  • Financial advisers should pursue a second degree in psychology to better manage behavioral tendencies that lead some clients to make poor financial and investing decisions.

Read the full article at http://www.investmentnews.com/article/20131205/FREE/131209947

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Nobel Laureate Robert Shiller said:

People make better decisions with financial advisers.

A lack of good financial advice was one of the problems that led to the financial crisis. Many Americans went into unsupportable debt to buy homes, which a good financial adviser would not have let them do.

Financial advice is particularly critical for low to moderate income families, on a par with medical advice, and should be made available to those without the resources to pay for it.

The government should compensate advisers who help lower-income people with financial problems.

Tax deduction for some investment costs subsidizes the wealthy because low-income Americans do not itemize deductions.

Investor overconfidence can put advisers in a tough spot because people do not like to be told they are wrong.

Financial advisers should pursue a second degree in psychology to better manage behavioral tendencies that lead some clients to make poor financial and investing decisions.

How Wal-Mart’s Waltons Maintain Their Billionaire Fortune – Bloomberg 09-11-13

Salient to Investors:

Lawrence Summers estimated in December that estate and gift taxes raised only $14 billion in 2102, or 1 percent of the $1.2 trillion passed down in America each year, mostly by the very rich, suggesting our estate tax system is broken.

Jerome Hesch at Berger Singerman said the very rich pay very little in gift and estate tax: at the Waltons’ numbers, the savings are unbelievable.

The richest Americans have amassed at least $20 billion in trusts like those used by the Waltons.

Charitable lead annuity trusts, or “Jackie O” trusts, allow a donor to lock up assets for say 20 or 30 years, set the amount given away each year to charity, and whatever remains at the end goes to a beneficiary, usually the donor’s heirs, without any tax bill.

With the type of Jackie O. trust used by the Waltons, if the trust’s investments outperform the benchmark rate determined by the IRS, then the extra earnings pass to the designated heirs free of any estate tax. John Anzivino at Kaufman Rossin & Co. said such trusts are attractive only to the wealthiest families because the assets are locked up for decades.

Wealthy families held a record $20.9 billion in Jackie O. trusts in 2011, almost twice the amount they held in 2000. The historically low U.S. interest rates since 2009 are making Jackie O. trusts more popular and spurring tax planners to develop variations designed to squeeze out even more tax savings.

Charles J. McLucas at Charitable Trust Administrators said this time will probably go down as a unique opportunity to transfer assets out of an estate at the lowest cost.

Individuals can claim that the value of a stake in such holding companies is far less than that of the underlying shares, even if the family can liquidate the stock whenever it wants. The Waltons have held their Wal-Mart stake in a family limited partnership or similar structure since 1953. Typical discounts are 20 to 30 percent.

Wendy Gerzog at the University of Baltimore said the discounts create a world of unreality.

Grantor retained annuity trusts, or GRATs, pays an annuity back to the person who set up the trust, rather than to a charity. The “Walton GRAT” has become a common estate-planning technique for people with large amounts of liquid assets, such as CEO’s of publicly traded companies. The current low interest rates make it all the more likely that a GRAT bet will be a win rather than a tie. Users of GRATs include the Coors brewing family and Nike founder Philip H. Knight.

Read the full article at  http://www.bloomberg.com/news/2013-09-12/how-wal-mart-s-waltons-maintain-their-billionaire-fortune-taxes.html

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Financial advice that is popular — and wrong – Financial Post 08-01-13

Salient to Investors:

The maxim “Don’t take a mortgage into retirement with you”’ is no longer true given mortgage rates close to historic lows and lower than on any other loan now or in the future.  Better to invest surplus money dollars in a retirement investment account which should return more than the 3 or 4% mortgage interest, which is tax-deductible.

The maxim “The older you get, the less you should have invested in the stock market” is no longer true because 60 isn’t the old 60, and bank deposits yield little and bond yields are near historic lows and carry the risk of loss when interest rates rise. The average 60-year-old faces a retirement that will last 25 or 30 years and over time stocks still outperform other investments. Large company stocks returned just under 10% a year between 1970 and 2012, a period that covers several market meltdowns.

The maxim “A debit card is safer than a credit card” is only true if you don’t have the discipline to charge only what you can afford to pay off.  Credit cards offer cash rewards, insurance if stolen, and no overdraft fees.

Spend less by going to a less expensive college if it means following your bliss.

Read the full article at  http://business.financialpost.com/2013/08/01/financial-advice-that-is-popular-and-wrong/

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