Archive for January, 2013

When to Start Saving for Retirement

Monday, January 28th, 2013

Nearly every day someone asks us when is the right age and time to begin saving for retirement, and we always answer that only you can determine when the right age and time is to begin saving for your retirement. However, we’d still like to offer a little food for thought as you thinking about your own retirement plan.

The Age to Begin Saving for Retirement

Although only you can decide when to begin your retirement savings plan, there are traditionally three schools of thought.

    1. Begin at Age 25

      It is often recommended to begin saving during an adult’s early 20s. This is usually the time when most have graduated from college and have landed their first real job. With most professional jobs, a 401k retirement plan is offered, and it is recommended to pay into the 401K to begin your retirement savings. A benefit of beginning to save in your 20s is that you will be able to save for decades by the time you are ready to retire. This can mean more money to live off when the working years have passed.  To offer a solid example of beginning to save this early please read below:

      Let’s say you are freshly graduated student who has landed your first full time job at the age of 25. If you begin putting roughly $2,000 each year into a retirement fund at an earnings rate of 8 percent, by the time you retired (40 years from now,) you would have approximately $560,000 saved to live off of as a retiree.  If you waited ten years from now and began to save for retirement at age 35, and if all variables were the same (same 8 percent earnings and same yearly amount invested,) by the time you saved for the 30 years until retirement at age 65, you would have only $245,000 saved up.

      That is a considerable difference in living budgets for the rest of your life, further showcasing the need to begin saving  for retirement at an early age. Read this great post about how demographic impact your savings.

        2. Save as Early as Possible

          Other schools of thought when it comes to retirement savings can be to begin saving earlier than the age of 25. If you began working part time at the age of 16, you may want to consider investing some money into an IRA account to prepare you even more for retirement quite a few years down the road.

            3. Get Your Ducks in a Row Before Thinking About Retirement

              For other people, saving for retirement may not be an option at the moment. Whether you wish to save independently with an IRA or invest in a workplace 401k, some will suggest holding off until all your ducks are in a row. This can mean completing the following list of things before beginning to save for retirement.

              • Have the financial ability to pay all bills and meet living necessities such as purchasing food and paying rent.
              • Create and establish an emergency savings fund to cover emergencies like hospital stays, emergency room costs, or even the car breaking down.  Keep in mind there are penalties for removing retirement funds before retirement, so having money in an IRA or 401k is virtually useless in emergencies and that is why it is a good idea to have an emergency savings fund.
              • And lastly, try to pay off all debts before beginning to save for retirement. Being out of debt before retirement can make your savings go further when you are living on retirement savings alone.

              Preparing for the Future, Today

              Only you can determine when is a good time to begin saving for your retirement. However, no matter the time and day you begin to save or the retirement plan you choose, it is always wise to begin preparing for the future, today.

              What We See For Self Directed IRAs in 2013

              Sunday, January 6th, 2013

              No one has a crystal ball and no one is 100% accurate in trying to predict the US economy. However, as wrong as people may be at a detailed level, its not too hard to see larger, more macro trends with some good level of predictability and accuracy. As such, we are seeing 2013 as a less than stellar year. Its not our desire to be a permabear and naysayer. We want to see the US grow and prosper as much or more than anyone. But, we have to look at the facts, figures, and trends and call them as we see them. What follows is our current view of how the economy is going to play out in 2013 and how these trends will likely impact your investment decisions with your self directed IRA.

              What are the key drivers for our less than optimistic outlook for 2013

              • The two political parties (democrats and republicans) will continue to operate in a total dysfunctional manner.
              • The Fed will continue to print, debase, and artificially drive down interest rates
              • The government will continue to tax and spend
              • The president believes in taking from productive citizens and disincentivizing commerce and capitalism
              • The government and many Americans believe that the government actually is a creator or wealth and prosperity and therefore a positive driver in the economy

              1. Government dysfunction

              The two political parties see themselves as fundamentally different. However, the facts don’t support that perspective. We are now at a point where both parties are agreeing to increase taxes on Americans, despite the fact that the government has seen record revenues over the last years, and despite the fact that government spending is up over 70% over the last 10-15 years. yet, they claim they need more money, and both parties are agreeing. Yet, no one seems to be able to address the elephant in the room which is too much government and too much spending. The push is towards more government in  our lives, more rules and this ultimately leads to more spending (a/k/a more deficits).

              At the end of the day the two parties are all about keeping their jobs, and not making any sacrifices. This just goes to prove how little difference there actually is in the two parties. the end result is not addressing our debts and deficits.


              2. The Fed has committed to more printing until attitudes improve

              The Fed just announced that it would continue providing fiscal stimulus for the foreseeable future. It has even increased its $40B per month treasury purchased to $80B per month. They have also announced that they will maintain low interest rates for the next 1-2 years.

              The issue that we see is that this is extremely inflationary. First of all, the printing (purchases in the market), just continues to push more and more cash into the money supply. The cash in the system is at all time historically high levels. At some point, these excess funds will find their way back into the consumer’s hands. This will result in a lot of dollars chasing too few goods, which puts upward pressure on prices. We already have seen inflation rates in excess of 6% (our real number versus the governments artificially low number).

              If we continue to see all of these excess dollars circulating in conjunction with very low interest rates, you are likely to compound the inflationary risk. the Feds only tools for tamping this down is to increase interest rates to really high levels. That only impacts the lending process and home prices. They still have the challenge of gracefully calling back all of these dollars.

              The bottom line is that we see significant inflation risks, which will have the effect of pushing up costs, prices for goods, services, and homes.

              3. The Government will continue to tax and spend

              The government debt is at all time, historic highs. The government is committed to be at 25-27% of GDP – all time high versus historical levels of 20%. One in every six Americans is on some sort of government financial assistance. 47M Americans are using food stamp – up from 25M just 4 years ago (refer to the chart below courtesy of http://www.trivisonno.com/food-stamps-charts).

              Food-Stamps-Monthly

              Its clear that the government will continue to need more tax revenue which can only come from the producers in our economy. With more and more people on government assistance, the pool of tax payers continues to shrink. This places and enormous burden on the producers which at some point, which we believe we have reached, the government burdens dampen economic growth, and further act as a disincentive for producers to produce more and for those on government assistance to get off of the assistance. Its a double negative and the net result is reduced, slow or negative GDP and growth.

              To further support the point, the President and Congress has just agreed to extract $1.4 trillion in tax revenue form Americans. We are already at $16T in debt and are now projected to hit $20T+ over the next few years.  Nowhere in the process did the powers that be drill down on any real spending cuts. The moral of the story is that bigger government is here to stay, and this monster needs more of our money for support and re-distribution to others.

              Self Directed IRA Recommendations

              Real Estate – We still advocate that real estate is  a good bet for 2013.

              • Real estate is a hard, tangible asset.
              • Its tough for the federal government to manipulate the real estate market
              • Even in bad times, people still need a place to live.
              • Government intervention will likely result in price inflation
              • Government intervention will likely continue to push people to be renters vs. owners

              Given these factors, we see direct ownership of rental real estate to be positive. We also see great opportunities in private lending through deeds of trusts.

              Precious Metals

              We continue to be bullish on metals in 2013. We advocate holding physical metals in your self directed IRA. We recommend silver eagles and gold eagles. The market has not necessarily been kind to metals of late. Many are still calling for the fall in metals prices, but they ignore the fundamentals. the price of gold and especially silver, is still not in correct ratio to historic ratios when you look at the overall costs of key items such as oil and real estate. Secondly, the naysayers continue to discount and ignore the inflationary impacts of the government and Fed actions.

              Given these drivers and conditions we are still recommending holding metals in your account in proper proportion to your specific situation and needs.

              Private placement offering

              This asset class is somewhat broad, but we need to address it. Certain specific industries can be interesting. In general, there are big movements towards crowd funding and the funding of small businesses. This is a hot area right now, but you need to use caution and perform due diligence and allocate funds in a direct proportion to your risk level. There are a number of private offerings that deal with real estate which can be interesting and can be good investments. However, the devil is in the detail of what the partners do and how they do it.

              Oil and gas offerings are still attractive. Energy prices may fluctuate a bit, but the overall macro trend is towards higher energy costs. This makes the profitability of a venture more likely. Here again, due diligence is very key when looking to invest your self directed IRA.

              Summary

              We see great opportunities in 2013 for self directed IRA investors. We believe that most people should strongly consider allocation a portion of their portfolio to a self directed IRA so as to move away from the influences of the government and Wall Street, plus take advantage of some of the return opportunities that will present themselves.