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

Barry Barnitz' Financial Page blog: Hidden Fees in 401(k) Plans

Barry tells you what the issue is succinctly. Follow the link to read, or at least skim the underlying paper. 'Gird up your loins' if you aren't into reading technical financial discussions. But if you have a 401(k), and if you need it to work well for you, it's a major part of your future financial well-being. Start now, by at least looking over the paper.

I've advised people on subfund choices and allocation for their 401(k)s, and from this advisor's perspective, some are so much better, and some are so "less better". It's your retirement, and good advisors and smart clients have to find ways to make these things work optimally, as imperfect as they are, in short, make them work as well for you as they have for the financial services industry.

So, what do you do right now, with your plan as it is now, whether good or not so good? You learn. Learn about the disclosed and the undisclosed fees, at least well enough to know what a 12b-1 fee is, and to get the concept that these things are not neatly itemized for you in anything your plan provider sends you. Shock your 401(k) contact person by asking for the prospectus(es) for your fund choices. Get it. Gird up your loins again and read the thing. Go to the notes if you have to, to get the specifics, and get them correctly. You could politely email the people in your company who make decisions about the 401(k) provider. You might politely let them know if you think the fund choices are not great. Ask them, 'What is a fiduciary doing paying out 12b-1 fees, anyway?' Not all plan providers work that way. If there are no low-cost index funds, ask 'why the heck not?' If there is an index fund or two, but the expense ratio is higher than any index fund you ever saw, ask (in a nicer way) why they gave you such a crappy choice. You also do not need six or seven essentially identical (say, US large-cap growth) funds. You need one excellent fund, with low expenses, in major asset classes. You don't need "bear market" funds, internet funds, technology funds, long-duration or high-yield (junk) bond funds (uncompensated risk, per the academics,) or annuity choices (high fees and crappy performance--read the paper Barry links to.)

If you don't want to do such things, you might get a low-fee advisor who knows what the word "fiduciary" means, and cares enough to try to be a good one! Ask how the advisor has structured his business to be a good fiduciary. It's hard to stump financial services types, but that might do it! If you find one, he or she can help some with that 401(k).

Good investing!


Financial page: Congressional Testimony on Hidden Fees in 401(K) Plans

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 People Saving Too Much For Retirement???

Naahhh. Seriously, there is a debate on this. And while there is something to be said for not unnecessarily living the life of an ascetic, there is certainly the necessity in this life for most people to be a little bit prudent about saving for their retirement years. Ms. Rowley does a nice job, as usual, of reviewing the issue. The important thing, if you are not saving, is to start, and stick with it. Saving something is better than saving nothing. Saving a little more is better than saving a little less. Take a step for your future. This month.


here's the article

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

MarketWatch, via Yahoo Finance: "It's getting easier to create a socially responsible savings plan"

Looking to try to do some good in the world with how you invest your money? Who wouldn't like to do that? The idea's interesting, and the article discusses the appearance of "socially responsible" choices in 401(k) plans. The link is below.

The first thing I would urge you to notice is that the 401(k) vendor is using the socially-responsible approach as a marketing strategy. This does not make it a bad thing, but it is largely about the use of socially-responsible investing as a successful marketing niche, because of its' appeal to investors who want to do a good thing. IMHO a 401(k) vendor who wants to do a good thing should start with setting fees and fund expenses at the low end of the competitive range. I can find not one word about fees in the article.

There are a few counterpoints in the article, and I will highlight one I think is extremely important: "Some people criticize socially responsible mutual funds for having lackluster performance. However, that isn't always the case." That isn't always the case? Boy, that's a powerful defense. The problem is that often it has been the case. The company most typically excluded by socially responsible mutual funds is Altria, fka Philip Morris. Nobody gets excited about owning the stock of purveyors of cigarettes. I don't -- my father lost most of a lung to cancer. Like many of his generation, he smoked. You should not smoke, but it still is a free country. But I'll admit this, Altria is probably one of the most consistently profitable and best performing long-term stocks you could have owned over the last fifty years, and the company does not stiff its stockholders. Jeremy Siegel called it the best single-company investment in his book The Future for Investors. It returns cash money to investors in the form of dividends. It is an honestly-run company too, as far as I can tell. I'm not touting it. What I am saying is that you could very likely find that many "socially-responsible" or environmentally-oriented companies don't gain in share value over time like Altria, don't pay out dividends like Altria, or have badly inferior records for honestly running their businesses, and keeping conservative accounting standards.

It is no simple call. Indexed products, arguably the best approach available, include the problem companies. Cull out your objectionable companies as you will, and you will very likely pay a price in lower portfolio returns, and still find your "socially-responsible" holdings in the newspaper over and over again after some scandal blows up. There are too few companies out there that will not ever disappoint you in some significant way.

In an imperfect world, I would urge you to try to invest as well as you can, for the best returns -- you'll need them -- and support your favored causes, like smoking cessation and addiction recovery, with your dividends and long-term gains. If you invest unwisely, you may not have the financial means to help your causes.

Otherwise, where do you stop? Throw out the gun makers, the war-mongering defense contractors, the casino operators, the booze makers, the ... carnivore meat-packers, the oil companies, the coal-mining companies, the polluters, the oppressors of poor third-world peoples, the fast-food operators who make America obese, the credit card vendors, the Predatory Retailer who is non-unionized and who stamps out locally-owned stores, the ... list goes on, depending on your own views of what is socially irresponsible. Is this any way to make a sane portfolio?

here's the article:

Yahoo! Personal Finance

This is Controversial! NYT - "A Contrarian View: Save less, Retire With Enough"

Hotly debatable in fact. I will say this: the financial planning profession's typical idea of how much you need to have saved when you retire just doesn't match the more modest amounts many middle-class people now in retirement actually have.

A Contrarian View: Save Less, Retire With Enough - New York Times

Managing Your 401(k) -- Just a Gentle Nudge

So, if you are having difficulty funding the kind of contributions you know you should be making to your 401(k), if it is a question of your lifestyle hindering your future, here are a few helpful ideas.

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.

A Thoughtful Columnist's Take on Retirement Funding and a Question

Are you ready to retire? I mean, are you financially ready to retire? Here is one columnist's take on the question.


Martha M. Hamilton - Age 65 and Not Ready or Able to Go - washingtonpost.com

I will get one thing off my chest right now. If you go into an office and do not see anyone with gray hair, it may just say something about that place's attitude toward older employees. They may not want any. But if their marketing efforts include reaching seniors as customers, then perhaps there is a big disconnect. If a business is not senior-friendly as an employer, then do they deserve to make any sales to seniors? If they wouldn't want you as an employee, well ...? Well?

You might even ask this question of your stockbroker!

Two Great Posts on Financial Page

Barry Barnitz' Financial Page blog is just a marvelous resource. The quality of the content is consistently very high. I'll link to two posts here and add just a few comments regarding the pdfs he links to.

First,

Financial page: Morningstar Year End Commentary Report.

Morningstar's numbers confirm what so many have observed as to how the markets are doing now. Large-cap value and small-cap value US stocks did very nicely in 2006 and continue to do quite well, though the small-caps may be cooling off some. Large-cap growth stocks are now performing about equally well as the large-cap value, and are valued somewhat cheaply, at least relative to some of their historic peaks of valuation. All of this implies that a portfolio with some value "tilt" is still working well, though the potential for improved large-cap growth relative to value in 2007 may be there. The beauty of it all is that, just as you would expect, value investing is looking just like one would expect, sort of the "man for all seasons," and growth, when it has its day, will likely give you plenty of time to work it in in a measured way, if you are into tactical or mean-regression anticipation approaches. Small-caps, likewise, if they go cold for a time, have pulled very well for a multi-year period, and a period of time when they trail their large-cap brethren can be handled well either in a strategic or more tactical way, depending on one's pre-meditated portfolio approach. Sticking to one's approach is the hard part!

The second post, What Moves the National Retirement Risk Index? gets into the real issue for us all. Will we be adequately funded for retirement? As a young man, I confess, I just couldn't get serious about thinking about retirement. I couldn't. Each day was full of things to do, and retirement might as well have been in the next century. It will be!

If you are young and reading this, congratulations. You can take small, easy steps now which can make a great positive difference in you future and the future of those you love. Put what you can into your 401(k) each month. Sweat over investing it well. Don't try to time the market by leaving your money in the money market fund or bonds choices until you see a bull market. You won't see it until it's well underway. If you got burned in the bear market, it's been over for four years now. You could have made some money, perhaps one hundred percent or more, just with some well-chosen, diversified equity holdings. If you've been very risk averse, expecting a terrorist dirty bomb attack or some other disaster, the news is that it did not happen. Live in hope, not fear. These are the years for you to grow your money. Sure, bear markets happen, but you, as a long term investor, do not have to sell. You can take the long view, stay invested, and pull ahead. Market timers, as a group, fall ever further behind. It is a fact of financial life. Successful market timing is the financial equivalent of searching for El Dorado. It is not there. But you don't need El Dorado. All you need are time and some good markets. Get some knowledge. Read up. Learn about the one thing that really, truly works over time. It is called asset allocation. It is like the proverbial wisdom of the book of Proverbs being cried out in the streets, and being mostly ignored because it is not "sexy", it is not fast, it does not lend itself to exploitation by billion dollar brokerages ravenously hungry for revenues, in the way that failed ideas like technical analysis and market timing and even (gasp) "active management" do.

If you are older and thinking that you may be underfunded, well you have plenty of good company. Understanding the problem is the first part of the solution. If you are underfunded, guard your good health, and get a good night's rest, and go to work, one step at a time, to move toward fixing things up. There is much that can still be done.

The Right Kind of Question You Should be Asking

401(k)s: How much do you need to contribute? - Dec. 19, 2006

This article does a good job of opening up the thought process. Will your retirement be well funded? The free online tools mentioned in the article can tell you some things about how well you are standing, or whether you need to save and invest more. You don't need to invest with the folks who put them on the web to use them. If you identify yourself, you will get some kind of a contact later, but you can put in an alias if you wish. The point is to use the tool, get an initial workup of where you stand. As you go through the exercise, keep your investment returns assumptions conservative, say eight percent per year. You want a real-world, meaningful result, don't you? If it looks like you are somewhat under-funded, do not go into a funk, get moving. Take steps. A new year is a great time to take steps toward a more secure future. You can still make a significant difference. You'll be very glad you did. You will!

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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