Advisor’s Journal:
The February 2011 issue of “Kiplinger’s Personal Finance” cover story is titled “The Changing Face of Retirement.” In the article, the author admits that she contemplated naming the article “The Death of Retirement.” The article seeks to find an answer to the question on how to retire in our new economic reality; a reality that they, and many advisors like them have helped to create. For instance, in the same issue the magazine questions the mental makeup of women to be good investors, citing studies that conclude women in general have more of an aversion to risk than men (by the way, good for you ladies). Even after all that we have been through, most advisors will still attempt to convince you that your money needs to be at risk in order to earn a decent return. They are wrong. Knight Kiplinger, Editor In Chief of “Kiplinger’s Personal Finance” writes that the 401K in its current form is not up to meeting the retirement needs of Americans but then goes on to say that Congress should mandate your participation in a qualified retirement plan. They have no other game plan to offer. A recent study by the Investment Company Institute found that the average 401K account value fell 28% in 2008. That loss is surmountable at age 45, but it would be disastrous at age 60. It's time to change the game plan for you to win!
Who is set up to win in your investments?
What is the cost of accessing your invested money? Every investment vehicle has a cost. An individual in the 25% tax bracket will pay a 15% capital gains tax when he or she sells a stock (assuming a gain). If the stock is sold at a loss, the investor has lost their money to market risk as well as lost opportunity because he or she has forever lost the ability to capture the interest that their investment would have gained had it been invested successfully. In addition, individual stocks offer the investor no solid exit plan: when do you sell? Mutual funds that pay dividends are taxed annually and then again when shares are sold (assuming a gain). Mutual funds that are sold at a loss really can beat up an investor because it is possible to pay annual tax on a losing investment. Money that is in a savings account is plundered by both taxes and inflation because the interest gained in a typical savings account historically has not outpaced the cost of inflation, which means that you are paying taxes on money that is losing its purchasing power. Did you know that it is possible for investments that produce taxable compound interest to negatively affect your lifestyle as they grow in value? Take any fund that you have that grows at taxable interest each year. As the value of this account grows bigger, so does your tax burden. However, people tend to pay the taxes on these types of accounts out of our pocket instead of selling off shares or dipping into the account funds (often times because the return would look less attractive) and as a result their lifestyle money decreases as the account value increases.
The above investment options are not bad nor evil, but when they are solely relied on for long term investment they can fail the investor in numerous ways. Premature Death: When a spouse or children are involved the above investment options by themselves offer no guarantee for providing for the family in retirement if premature death robs the investor of time to build his or her savings. Loss of Principle: Investments of chance like stocks and mutual funds offer no guarantee for growth. The years 2000 to 2010 are known as “The Lost Decade”, because the market experienced essentially no overall growth. When working with a client for the first time, often I will ask them how their investments are doing. It is not uncommon for them to tell me, “ I lost a lot over the past several years, but fortunately I’m close to being back to where I was.” Ouch! Three years of growth opportunity that they will never get back. It doesn’t have to be that way. Unnecessary Transfer of Wealth: Ask yourself who is set up to win with your investments. Are you assuming all the risk and then giving money away in the form of taxes or fees if your investment succeeds? Disability: This is where 99% of investment vehicles fall flat on their face. If you become disabled and as a result unable to work, how will that affect your investments? Will you be able to fund them? Will you be able to withdrawal money without penalty if you need to because the lack of income from being disabled has severely hindered your cash flow?
Step 1: Install a Guarantee
Wouldn’t it be nice if there were one product that could offset every weakness in the investments that we just discussed? There is a product that: 1) accumulates money with tax free interest; 2) guarantees that your family will have the money you would have saved for retirement, even if premature death robs you of time; 3) can be used in conjunction with your other investments to avoid compound taxation or infuse cash into well performing investments; 4) reduce the unnecessary transfer of wealth by using it to fund large purchases and in doing so avoid paying interest to credit card companies or banks; 5) form a solid financial base for retirement; 6) allow you to safely spend down your money in retirement; 7) will allow you to access your money at anytime without penalty; 8) will be there for you without increased financial burden in times of disability.
There is, and we have only hit the tip of the iceberg. Would you like to save more in the next 10 years than you saved in the last 10 years? Would you like to learn how to prevent your money from needlessly transferring to the government, banks or credit card companies? Would you like to know how much money you will have when you reach retirement instead of wondering? Would you like your family to enjoy the retirement you intended them to enjoy regardless of disability or premature death? If any of these questions produce a yes answer, ask us how we can make that happen for you.
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For Parents
Family dinners encourage responsible behavior among teens. Recent findings suggest teens who have dinner with their families at least five times per week are less likely to abuse drugs and alcohol than teens who have dinner with their families three or fewer times. Teens who are less involved with their families are twice as likely to use tobacco or marijuana...more than one-and-a-half times more likely to use alcohol and twice as likely to try drugs.
February Birthdays
If you were born in February, you share this month with: Clark Gable, Abraham Lincoln, Galileo, Michael Jordon, John Glenn, George Washington, and Johnny Cash.