Order's important when tapping into assets -- USA Today

A pretty good overview of this subject.

I'll throw out for you one idea not in the article, useful if you have built up your investments nicely, and are blessed with substantial money in taxable, tax-deferred, and even tax-free (Roth IRA) accounts. What follows is of course directed at US readers.

You can tweak where you take the money from to legally play the tax code like a violin, in other words, minimize your taxes. For example, you could take out money up to the top of the 15% tax bracket from your 401(k) or traditional IRA -- these distributions are taxed as ordinary income; than take additional money from the taxable account at long-term gains rates on the portion that is LT gains; finally, even a bit more from the Roth when you have to. All of this bearing in mind the relative amounts you have to work with, and avoiding depleting any one of the three types of sources unduly. Cool, huh? Not always very easy to execute, but the concept is powerful., and it beats a simple-minded "hit the taxable account until it's gone, then the IRA/401(k), then last, drain the Roth" approach. I am an IAR and have my own RIA firm, and am not a tax practitioner now, so before using this or anybody else's neat ideas, you be certain to check out what your own tax adviser says.


Investing: Order's important when tapping into assets - USATODAY.com

Mr. Buffett and the Unknown Advisor Differ on That!

"Buffett blasts system that lets him pay less tax than secretary." He did not pay less than his secretary. He made $46 million and paid 17.7 percent, or $8,142,000 in tax. She is said to have made $60,000 and to have paid 30 percent in tax, or $18,000. Hmmm, now, eight million is more than eighteen thousand.

He apparently did pay a smaller percentage of his income in taxes than she did. So what. Presumably, he used every trick the tax code allows, and well, the cost of those things is typically lower investment performance. So he traded some investment performance away for lower taxes. I would too. So would you. Also, we are dealing here with capital, not wages. His salary, being greater, would indeed have been taxed at a higher rate. Buffet is being mendacious here. He knows all this, he just wants you to have higher taxes, to build a new age of big government, funded by big tax rates, under his favorite Presidential candidate, whose initials are HRC.

If taxes go up, investors will invest to have something left after taxes, rather than to maximize their long term gains. So our investment outcomes will suffer. Then we will all eat cat food and cut pills in half in our old age, excepting him, Hillary and Bill. He'll still be able to afford his cheeseburgers, and to buy theirs also.


Buffett blasts system that lets him pay less tax than secretary - Times Online

MarketWatch: 'Pollyanna', 'Americans refuse to confront dark side of retirement'

How about you?

A few of Mr. Powell's points:

"More than seven in 10 Americans are either 'very confident' or 'somewhat confident' " [regarding the adequacy of their retirement funding.]

"Yet almost half of workers have less than $25,000" [saved, excluding home or defined pensions]. This stinks. Your pension, if it comes in and stays reliably funded, may not be as much you think it will be. Are you married,and planning to get the 'pays as long as either of us is still alive' option, the amount you get will be reduced by perhaps a fourth. A fourth. the alternative is worse. Don't, please don't (guys) shaft the wife of your youth by taking the single-life option. (Individual circumstances might alter this. I'm talking about the normal case here.) If you do that, then die first, then she is without that ongoing money.

Your social security will only pay in full if you wait until you are 66 or even older. Take it earlier and they cut the payment. Work between then and your 66th birthday or whenever the magic date is for you and they take back a lot. And what you do get from Social Security likely will be "means-tested" at some point. That means you may get less. In other words, if you are not simply destitute, you might get to assist Uncle Sam to reduce his staggering budgetary pressures by getting even less.

The message for those of you in this situation is that you should get very, very serious now about providing for your retirement years. And watch out for the financial services pros who want to cure your apprehension by selling you some cure-all, heavily commissioned wonder annuity. Poor performance, excessive salesman compensation and wretchedly bad disclosure of ongoing costs will not make your situation better. The best solution is learning how to invest well, or, failing that, get some low-fee competent advice. And then you make the very best use of your remaining years in the workforce to get yourself back into the game.



Sunny Americans refuse to confront dark side of retirement - MarketWatch

MarketWatch: Working in Retirement

Robert Powell has an article at MarketWatch offering some good thoughts in an interesting article. What if you are underfunded when retirement starts? He says that one in four Americans will not be able to work in retirement, due to health or other issues. Many may be planning to do so. And not enough employers are gearing up to hire or retain older workers.

Working during retirement, to bring in some extra money, to stay busy with your field, to stay interested in life, to feel useful: each is a valid reason for staying employed. Powell notes that there "is also a question as to how ready employers will be to hire and retain older workers." good point. Do you want a robust job market for seniors, like yourself, like your friends? I suggest that you spend your money where you see people who look like yourself! When senior start telling service providers and others you do business with, "I am sorry, but I do not patronize businesses who will not hire a qualified older person", then you will see change.

There are links to great resources in the article, including a study on retirement readiness, weight and retirement, older workers and the workplace. Go see. Think about this if you think you might need to work in retirement.

What do you love doing? Is there a job or self-employment doing what you love?



Working in retirement may not be your best backup plan - MarketWatch

Are Federal Employees Investing too Conservatively?

Yes, Uncle Sam's employees have a pretty good deal, overall. But the study of the TSP referenced in the WP article below gives the numbers: about 29 percent are investing with a "no risk/low risk" approach; about 59 percent "moderate or balanced", and about 11 percent investing with more risk. The conventional rap on government workers is that they work for the government for career stability. I think that is probably partly correct, but if more than 11 percent of federal workers are relatively young, when you need, need, need to be getting your investing off to a good start, then they are potentially unnecessarily courting the risk of underfunded retirement. And the rest still need to be investing in a way with an age-appropriate allocation to equities, to make that money grow. The TSP is a fine plan, and there are some pretty good things to work with in it.


Stephen Barr - Careful Retirement Investing - washingtonpost.com

MarketWatch: "Support squeeze - Tips for coping when care for parents, children means delaying retirement"

A useful discussion, and frankly, I don't think enough is being written on this. "Honor your father and mother" has never been repealed, and it includes supporting them if their resources are not enough. And yes, "support" does mean much more than money. God bless the ones who are on the front lines of this issue.


More retirements get squeezed by parent, adult-child care - MarketWatch

Keeping the gold in the golden years - MarketWatch

If there is one topic for retired individuals to ponder, to stay up with what advisors are saying, it is this.


How to spend more money in retirement without going broke - MarketWatch

Some take-aways: "'People need cash flow; they need money and they need it to grow by more than the inflation rate,' said Harold Evensky, a financial adviser in Coral Gables, Fla. 'You need to think holistically and throw out the concept of an income portfolio.'" I tend to agree that going too conservative with your investing will subject you to the greatest long-term risk, that of outliving your money as a consequence of low portfolio returns, inflation, and a good long life. You don't (speaking rather generally, here,) invest like a young person, but neither should you go into the investing equivalent of the fetal position either. At 66, for example, you may still have a twenty or twenty-five (or Lord willing, even longer) investment horizon -- that makes you a long-term investor, and frees you up (some) to go for some gains.

Another: "A generalized approach to spending starts with a '4% solution' -- taking 4% of a portfolio's total value in the first year of retirement and increasing this amount annually to match inflation. ... but 4% is a baseline. A study by financial adviser Jonathan Guyton, published in the March 2006 Journal of Financial Planning, says retirees can accelerate spending provided they adjust to market fluctuations. " Guyton's study is very intriguing, and intensely debatable. I've read it. I'm certain that it won't be the last word. The article does a reasonably good job of synopsizing Guyton's conclusions, but you really should not not modify your own draw-down plans without discussing the question with your financial advisor.

Read the entire article carefully. There's a lot more good stuff in there.

SmartMoney.com Says You Need to Lose Weight -- and Fatten Your Wallet

And they present a number of very good reasons why. There are financial dimensions associated with your dimensions! Insurability and longevity being among them. And there are some good comments.

And perhaps I should include myself among those who would benefit.


Losing Weight Will Fatten Your Wallet (Deal of the Day: Personal Finance) | SmartMoney.com

Who Needs the Financial Planners the Most? The Struggling or the Rich?

One of the fascinating and frustrating things financial planners have to deal with is the knowledge that in a sense, the planner has almost as big a task in serving a client with lesser financial assets as he or she has in serving a client with much greater sums to manage. The remuneration for serving a richer client is of course greater than that for serving a "less rich" client.

But the needs of the less wealthy client are in a real way much greater. Many clients do have enough, if it is well managed, and not eaten up by high fees. Consider the client facing retirement in a few years and perhaps finding out that she is not as well funded as she thought. Retirement, perhaps thirty years of retirement, will cost her (or you) quite a lot. Paying the bills, keeping up a home and car, and just living each day with fear of running out of money are really the more burdensome challenges.

Another client, a wealthier client, will eat well, live well, and fret about things like passing on as much of her wealth to the next generation as the tax man will permit, and in the way she wants, and perhaps accomplishing some personal charitable endeavors and all kinds of other goals. She has needs, but does not face anything dire. Her needs can of course involve overcoming significant challenges, but she won't suffer the same kind of anguish as the challenges facing the first client.

One of my personal peeves with the financial planning profession, is that not enough energy and creativity, in my opinion, have been directed to finding exemplary, non-exploitative ways to serve the first client. As far as the second, well, I think it's safe to say that most of the best planners, just like the Reverend Will B. Dunn in Doug Marlette's amusing comic strip Kudzu, feel a very strong call to serve the frightfully well-to-do.

As for the first client, I have heard one well-known speaker at a Financial Planning Association event a few years ago suggest in so many words, that you can't help that client, so just sell her an annuity and move on. I was, to be polite about it, very disappointed.

No, I cannot undo a client's lifetime of poor financial or life choices, or just plain adversity. But there are many clients who could still see a broad range of possible outcomes, with the better outcomes more likely if they are well served. But trading a sum the client now has for an annuity representing a substantially smaller present value (and pocketing a quick commission,) just does not seem like much help to me. That is what you get when you buy an annuity. I am not totally against annuities, carefully chosen, and particularly for clients like physicians with wealth protection concerns, but there are significant concerns for everyone but the salesmen and insurance companies about their costs, and about giving and getting understandable disclosure of those costs so that a financial lay-person knows what is involved -- well, does the term "surrender charges" mean anything to you? It should. If it doesn't, you are assigned to look it up for next time! hint. They can involve serious money.

We need to find better ways to serve you if you are more like the first client.

While we are considering "inadequately funded retirement" concerns, I would note that for those able to work, the usual financial planner's suggestion to keep on working a few years more and save every dollar you can in that time has some practical shortcomings -- I found one beautifully illustrative article awhile back in USA Today. The link is below. Retirement may come before you expect it.

A hopeful thought: Have you got something you always dreamed of doing?

Come back and see the Unknown Advisor soon!

Here's that story: Many Americans retire years before they want to

Get Your 401(k) Working Right! Beat Longevity Risk.

Longevity risk is the risk of outliving your money. It shows up in financial projections for an individual frequently. Many financial planners see it as the greatest financial risk.

This article is really very good. It catches many of the common issues with 401(k)s, from plan shortcomings, to the most common things you as the employee can fix. If you are feeling too busy to find out a bit about doing 401(K)s the right way, this article could be your start.

Make your own choices, as each person's situation is different, but some good generalities should apply:

I would emphasize: if you are young, consider having the great bulk of
the money in equities. Yes, they do go up and down. That is nothing to get depressed over, because as a long-term investor, you do not have live in terror of normal market volatility, or even cyclical market declines. Markets go up when they're done going down. They're like that. No other asset class will get the job done for you as well as equities. Do not get trapped into just choosing the moneymarket fund or the stable value fund. The danger of being underfunded when you are old is greater than that from market volatility. Educate yourself more. I will be building a blogroll of the sites and people I respect the most. For a beginning, if you want something right now, search the internet for Scott Burns' columns archive. He is phenomenal. You must prudently seek appreciation by balancing the risks with equities and other asset classes -- learn about asset allocation. It is what gives you a functional portfolio, rather than just a bunch of stocks or mutual funds.

Do not ignore foreign stocks or small-cap stocks. Each has powerful reasons for inclusion. A bit of a value orientation to your equities choices is a plus.

Do a little mutual fund research. Find the best alternatives your 401(k) plan offers. Bug you plan administrator for prospectuses of the fund choices you have, or rummage around the plan website for them. Dig down for the fees disclosure. Get really annoyed if you see a bunch of 12b-1 fees in your plan choices, or if Morningstar.com describes your plan's fund choices with terms like "asset-bloated", "perennially underperforming" or "closet index funds".

The article referred to above is quite correct as to the age/target/destination funds having a problem with being overly conservative. more and more research is coming along now from objective academic finance big guns indicating that you should not reduce the percentage of your assets in equities as fast or as much as has previously been commonly recommended. Your risk of outliving your money is the greatest risk you face. Balance out the risks in a responsible fashion for you.

Don't try to time the market, by doing things like going to cash after the market has gone down some. You'll miss the recovery! Financial markets go up over the long run, though sometime the long run can be a long time coming. And don't be changing you fund choices around all the time. You'll just cost yourself money almost every time you do that.

You might even consider joining the school of thought I subscribe to: market volatility can be your friend, not the enemy, if you get your asset allocation really well thought out, and applied, and stick tenaciously to it.

The Unknown Advisor