Archive for October, 2016

Structuring Your Retirement Portfolio Responsibly

Wednesday, October 26th, 2016

structure - reg

Shed risky stocks

One recipe for endangering your financial future is having an investment portfolio full of risky stocks. Even if you only hold a few risky stocks, you might want to sell them. Volatility is easier to handle when you’re a long way from retirement: Should one or more such holdings plunge, you’ll have time to wait for rebounding prices, and if a holding simply goes down in flames, you’ll still be working and able to keep adding money to your investment portfolio.

There are plenty of stocks that are too risky for us at any time. These include stocks where you don’t really understand how the company makes its money, where you don’t see sustainable competitive advantages, or where the stock is simply overvalued.

Take advantage of different account types

Like anything in life, retirement isn’t a one size fits all kind of deal, which is why there are an array of accounts that savers can choose from. Finding the account that best suits you is important, because depending on your income, tax bracket, how willing you are to delve into retirement savings, the standard 401K might not be for you. Between a self-directed IRA, precious metals IRA, Roth IRA, or Traditional IRA, or a 401K, you have options within your options that will help or hinder your portfolio depending on how you work them.

Consider buying annuities

One of the best things you can do as you age is take more pressure off yourself financially — and a great way to do that is via annuities. If you build an annuity or two into your retirement portfolio, you can receive dependable income without having to keep track of any investments.

Focus on fixed annuities, not variable or indexed ones, as they can be more problematic, with high fees and restrictive terms. A fixed annuity offers a fixed income (possibly increasing with inflation, if you pay for that feature), that can start arriving immediately or in the future. As an example, with a $200,000 investment, a 70-year-old couple might be able to collect close to $1,000 per month in fixed annuity income for as long as at least one of them is alive. A 65-year-old man could spend $100,000 today for a deferred annuity that pays him about $1,200 per month beginning at age 75. Deferred annuities can help you not run out of money as you burn through your nest egg in retirement.

Which Presidential Nominee Has Your Retirement in Mind?

Wednesday, October 12th, 2016

Hill v Donald

When it comes to Americans likelihood of retiring, positions and policies that both presidential nominees advocate could have a significant impact, considering that both the Democratic and GOP candidates differ remarkably in key areas concerning retirement.

Let’s take a look at Democrat Hillary Clinton and Republican Donald Trump’s positions in five critical categories that have the potential to affect retirement for millions of working Americans: Social Security, medical insurance for early retirees, Medicare, financial industry regulation and investments/capital markets. Which candidate has the better plan for each one?

Social Security

Early this summer in response to a request from AARP, the Clinton and Trump campaigns both prepared statements regarding their positions on reforming Social Security, and their answers were strikingly different. Clinton offered specific, detailed proposals that would strengthen the funding of the financially strained system and that would better meet the needs of a changing older population. Many of her proposals agreed with recommendations from a recent comprehensive study conducted by the Bipartisan Policy Center.

Trump’s campaign provided no proposals from the candidate specific to Social Security’s financing or benefits design. Instead, it reiterated his campaign positions about building the wall, reforming individual and corporate income taxes, renegotiating trade agreements, reforming immigration policies, repealing Obamacare and repealing the Dodd-Frank Act, which reformed the financial industry following the recent financial crisis.

On this issue, Clinton has the advantage.

Medical insurance for early retirees

Clinton’s website states that as president, she will:

  • Support the Affordable Care Act (ACA), which allows anybody to purchase health insurance without being subject to exclusions for preexisting conditions. Prior to the ACA, many retirees under age 65 were unable to purchase health care at any cost due to such exclusions.
  • Allow retirees age 55 and over to buy into Medicare.
  • Provide incentives for states to expand Medicaid coverage, which will help low-income retirees obtain coverage before age 65.

Lack of medical insurance before Medicare eligibility at age 65 is a retirement deal-breaker for many working Americans.

Trump would repeal the ACA and has no plan that would allow pre-age-65 retirees to purchase much-needed medical insurance. This is a crucial difference from Clinton. He would also allow individuals to deduct the cost of health insurance premiums, but this feature isn’t worth much if you can’t buy coverage at any cost due to preexisting conditions. And he would encourage the use of health savings accounts (HSAs), but this would do little to pay for potential catastrophic medical conditions.

The ACA helps Americans of all ages who don’t have access to health insurance through their employers. The ACA clearly has flaws, but having lawmakers work together to fix them is a better outcome for this group of Americans than outright repeal.
On this issue, Clinton has the advantage.

Medicare

Clinton would not change Medicare’s eligibility requirements. Furthermore, she would reduce the cost of prescription drugs by negotiating Medicare reimbursements with drug companies.
Trump’s website states that he would bring more competition to prescription drug pricing. In the primary, Trump opposed cuts to Medicare, although this position conflicts with the Republicans’ official platform position. Trump’s support for repealing the ACA could undo some features that save costs for the Medicare system.

On this issue, let’s rate Clinton’s and Trump’s positions as a tie, although it’s troubling that Trump supports repealing the ACA without a specific plan to reinstate its cost-savings features.

Financial industry regulation

Clinton has gone on record supporting more regulation and oversight of the banking and financial industries, and she would uphold the Dodd-Frank Act. Trump’s position on repealing the Dodd-Frank act is particularly troubling, given such events as Wells Fargo (WFC) admitting to opening millions of unauthorized credit card accounts for unwitting customers. As with the ACA, Americans would be better off if Congress and the executive branch worked together to improve Dodd-Frank’s protections for consumers, instead of outright repeal.

Clinton publicly supports the new fiduciary rule promulgated by the U.S. Department of Labor (DOL), which requires financial advisers and institutions that are making recommendations on the investment of retirement accounts to act in the best interests of clients. According to one source, Trump hasn’t taken a position on the DOL’s fiduciary regulation, although some believe he will stop the rule, and at least one Republican lawmaker is calling on Trump to do so.
On this issue, Clinton has the advantage.

Investments and capital markets

The nonpartisan Committee for a Responsible Federal Budget recently estimated that Clinton’s economic proposals would add $200 billion to the federal debt over the next decade, while Trump’s would add $5.3 trillion. It’s hard to imagine such a jump in the debt being favorable to capital markets. An increasing appetite for federal debt could crowd out other borrowers and leave the country more vulnerable to overseas governments that own our debt.

Trump has gone on record as advising Americans to avoid stocks when investing their 401(k) accounts. Having a presidential candidate make a public statement advising against participating in our nation’s primary investing and capital financing system is unprecedented in political history, and it may not bode well for stock markets if he’s elected.

A recent analysis by Moody’s Analytics estimates that Trump’s economic policies might spark a recession, while Clinton’s policies might boost GDP and lower unemployment. Moody’s, which has been monitoring and analyzing credit risk for over a century, can hardly be considered part of the liberal media that supposedly opposes Trump.

On this issue, Clinton has the advantage.

You may want to consider many other details and nuances regarding the candidates’ positions on these issues. And neither has yet taken positions on other issues that could improve the overall security of Americans’ retirement, such as expanding retirement plan coverage to the half of the workforce that doesn’t now have it. However, overall, Clinton’s policies and positions appear to be much more favorable for the retirement of working Americans than Trump’s.
One last thing to consider: There’s the strong possibility that no matter who is elected, the next president won’t be able to get Congress to pass all or even some of his or her proposals. So it’s not certain how the election will ultimately affect Americans’ ability to retire.

Of course, you’ll want to consider the candidates’ positions on the other important issues that will have an impact on the health, vitality and security of the nation — another reason that voting this November is an important part of your retirement plan.

Should You Opt Out of a 401K and into a Self-Directed 401K?

Wednesday, October 5th, 2016

Out of a 401k - Copy

Many of those reading this article will hopefully know what a self-directed IRA is, but we’re here to talk about what exactly the lesser-known self-directed 401K is, and why you should think about opting in for one.

A self-directed 401K is essentially the same thing as a regular 401K, but the main difference is that you are able to invest in non-traditional investments, so it opens up your 401K in the same way a self-directed IRA opens up a regular IRA.

The way that a 401K plan works is that your company serves as the “plan sponsor” for the 401K, but it doesn’t have anything to do with investing the money. Instead, the plan sponsor (The company you work for) hires another company to administer the plan and its investments. The plan administrator may be a mutual fund company, a brokerage firm, or even an insurance company.

A self-directed 401K gives you thousands of options, so for a seasoned investor who is used to doing financial research, that’s a good thing. But if you’re a novice, assessing a world of mutual funds and stocks can be overwhelming.

Start by considering how much time you have until you need the money — your expected retirement age. Then think about how much risk you’re willing to take. Can you own aggressive investments without losing sleep, or do you need something more stable before you’re comfortable? Your time horizon and your risk tolerance should be the deciding factors when you choose what kinds of 401(k) investments are right for you.