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Social Security Do-Over is Over

The Social Security Administration has eliminated the “file and suspend” benefit (also called the social security do-over) that we previously write about in March 2009.  The do-over benefits had allowed retirees to make money by retiring early, starting benefits at the earliest age, age 62.  Then, upon reaching full retirement age (around age 66, depending on birth date),  withdrawing from the system by repaying the benefits received without interest.  Then they would re-file and receive the full social security benefit based on their current age (e.g. age 66). There was no reason for the Social Security Administration to ever allow this benefit amounting to an interest free loan and manipulation of the system.  The Social Security Administration finally figured this out.

Immediately, if a retiree applies to become a recipient of Social Security benefits, he has twelve months from the date of the first payment to withdraw the application and repay entitlements received.  This can be done one time, in other words,  to correct a mistake.

Very few people actually used this social security loophole ( I would guess that few knew about it or understood it or had the repayment funds to enjoy it). During 2009 only 1,015 of these ‘withdrawal applications’ were filed.  The number dropped in 2010 as by the end of June only 345 had applied to repay and withdraw.

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Retirement: News, Appraisals, Information, Research, Advice – Everything Life Settlements

Municipal Bonds for Retirement Income — Little Known Aspects

Municipal bonds can be a great source of retirement income and this post will keep you from getting ripped off.  The interest is high and tax free but the way municipal bonds are sold lacks regulation and disclosure and you’re about to learn what your broker will never tell you.

Municipal  bonds are not for everyone and are best suited to those who can get maximum benefit from the tax free savings.  The maximum beneficiaries are those in the 25% or higher federal income tax bracket  ( for 2010, single people with taxable income of $34,000 or more and , marrieds with taxable income of $68,000 and more).  If your taxable income is less than these amounts municipal bonds investing MAY not be advantageous because you could make more by investing in taxable bonds and paying the tax. In other words, taxable bonds typically pay more interest so someone in a lower tax bracket will be better off getting the higher interest, paying the tax and still come out ahead.

BIG EXCEPTION:  Because municipal bond yields DO NOT have a constant relationship with others types of retirement income options,  one must analyze at the time of investment which type of bond would bring you put ahead.  The next paragraph illustrates.

Getting 5% from a tax free bond in the 25% federal tax bracket is an effective yield of 6.66%.  Where else can you get anything close to 6.66% rated AAA?  Currently (9/16/10), municipal bind interest rates are out of whack and tax free bonds pay WAY MORE than they should relative to treasury bonds or high grade corporate bonds.  That MAY be because the smart money expects the issuers of municipal bonds to default (i.e. go bankrupt) and not be able to pay off their bonds. Or, it may be due to very significant purchases by foreigners of US Treasury Securities which have pushed their yields down to uncharacteristically low levels.

You can buy bonds issued by your state or any state (or any municipality).  While many suggest buying bonds just from your state because the interest will also be free from your state income tax, it is better to have diversification.  I live in California and don’t want my entire bond portfolio concentrated here given the State’s chronic inability to balance its budget.  So I buy tax free bonds issued by others states and I will pay state income tax on this (about 6% of the income I receive) but no federal tax.

Unlike stocks, the prices of tax free bonds don’t get published in the newspaper.  There are just too many issues to list in the paper and that’s what makes municipal bind investing less than transparent.  Add to this that there is no government requirement that forces your broker to show how much commission you pay to buy a bond.  The broker simply adds their markup to the price so your transaction cost is hidden.  However, you can avoid getting ripped off.  The Municipal Sales Rule Making Board tracks prices paid for municipal bonds in recent purchases.  By consulting their web site you can check the actual recent price paid by investors and dealers. That way,  you’ll know if your broker is giving you a fair price (1% to 2% commission is fair to pay).  Or, you can use the prices that have transpired to give your broker a limit price.  Just visit http://emma.msrb.org/ and enter the cusip number (the identifying number) of the bond you desire to research.

If you are buying $25,000 of an issue, it’s not unreasonable for a full service broker to mark up the bond 2%.  However, the markup will usually be 1% or maybe .5% from a discount broker.  You can do a search for bonds trading on the market at http://www.rbcbondsearch.com and www.bondsonline.com.  You need to know enough to set your criteria when searching for bonds you might want to own: term, type of bond, rating, etc.  The web site will produce a list of bonds meeting your criteria and show you the cusip numbers so you can look up recent prices.  To learn more  about any issue, you take its cusip number (its identifying number) and look it up at the EMMA web site http://emma.msrb.org, which not only has prices but also the offering memorandum for the bond, describing all aspects of the issue and annul statements since issuance and recent trading/price history.

Now you have basic tools for becoming a sophisticated municipal bond buyer and not getting ripped off on price.  In a later post, I will review the dangers of municipal bond funds.

Financial advisors who can assist investors with retirement income investments, ProspectMatch

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Retirement: News, Appraisals, Information, Research, Advice – Everything Life Settlements

Retirement Income Needed- an overlooked source

Supplemental Retirement Income

Would you rather depend on others for your retirement income needed or depend on yourself? Most retirees depend on others for retirement income–social security, the bank, their pension, etc.  Unfortunately, you cannot control any of these retirement income sources so if you get screwed, it should come as no surprise.  Let’s discuss controlling your income in retirement.

Own or invest in a business.  You can do this at any age.  In your town, there are dozens of opportunities to get needed retirement income from a  business.  You don’t need to work in it–you can just be an investor.  For example, what is your favorite restaurant?  Would that be a business you would like to own or own part of?  Then ask the owner if he is looking for investors–maybe he needs cash to send his kid to college or maybe he wants to open another location.  What about your clothes cleaners?  Are they busy?  is this a business you would like to own or own part of?  Think about everyone you buy something from and if you think its a quality business you would like to own, then ask the owner if he wants an investor.  Your retirement income needs may be satisfied right in your own town.  These local business–restaurants, clothes cleaners–they generate plenty of consistent cash for the owners.  Typically, 20%+ of the revenues can be taken as income and can be the source of your retirement income needs.

Or maybe you’ve said to yourself “I wish there were a …… in my town.”  Well why not start it?  If its a big company or a franchise then call them right now. Would you rather get supplemental retirement income from something you can control or observe that’s right in your town, or invest in stocks, or bonds with people you don’t even know, who may have questionable ethics and be the next target of the Justice Department or SEC?

“But I don;t know anything about…..,,” you say. Well FIND OUT!.  Go to the library, get on the Internet, talk to others in that business.  Retirement planning knowledge does not come out of thin air.  It comes from asking and investigating.  Be interested in looking stupid (you need to get over the American hangup of looking stupid) and asking basic questions so that you learn what you need to know to secure your needed retirement income.

Alternatively, maybe one of those local businesses want to grow and will hire you to make their business grow, assuming you have no money to invest. Take your favorite restaurant.  Have them print up coupons that you will give out to everyone you know (you can also put them on the windshield of every car parked in town).  For each coupon that gets redeemed, the restaurant owner agrees to pay you $10 to supplement your retirement income.  Sure, that payment to you may consume their profit on the meal they serve but if the new customer is impressed, he comes back again and again and the restaurant owner earns hundreds of dollars over the years from his new patron.  Same with the cleaners you go to, the fruit stand, etc.

Its time you get out and about and see all of the many sources for retirement income needed.  Put on your supplemental income glasses and see all of the opportunities around you and stop looking for the job that does not exist.

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Retirement: News, Appraisals, Information, Research, Advice – Everything Life Settlements

China Investing for the Retired Investor

You may be curious as to how you can invest in China and also worried about doing so.  You of course hear about the real estate bubble in China and of course are worried about investing in a communist country.  You also know that fast growth markets are subject to high volatility in their economies.  But on the other hand, you know that China just passed Japan as the 2nd largest economy in the world and how long will it take until China surpasses the US?  You want a piece of the Chinese investing action.

Here’s a way to invest in Chinese growth that may make some retired or conservative investors feel better. The following three US companies have placed big investment in China and you can bet along with them:

  • McDonalds opened 136 stores in China last year
  • Yum! Brands (parent of KFC and Pizza Hut) opened 80 stores and reported sales growth of 11% (compared to no growth in the US)
  • Walmart has more than 50 stores in China (and purchases $27 billion of Chinese goods for all of its stores, worldwide)

Although Chinese operations are a small part of these very large company’s portfolios, China will be a rapidly growing portion of these companies and allow investors to bet along side firms that have established themselves as shrewd investors.

Consider that while the US form of capitalism was a leading model for growth in the 20th century, our model may be outdated.  It seems like our politicians are lost and America is adrift, both politically and economically. The new “winning model” appears to be the model used in China–a centralized yet benign governing model. The government can make decisions quickly, does not waste time on debate and if it maintains a benign outlook on its population, may well have capitalized the winning model of the 21st century.

Advisors seeking new clients ProspectMatch

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Retirement: News, Appraisals, Information, Research, Advice – Everything Life Settlements

FINRA Fines

The Financial Industry Regulatory Authority (FINRA) is the largest independent regulator for all securities firms doing business in the United States. All told, FINRA oversees nearly 4,700 brokerage firms, about 167,000 branch offices and approximately 635,000 registered securities representatives.  Their job is to protect you, the investor, that you have a safe place to invest.  How well are they dong?

I did a Google search on “FINRA fines” and here’s what i found from the first two pages (there were 143,000 total results):

Finra Fines Deutsche Bank $7.5M In Subprime Case‎

FINRA Fines SunTrust $1.4M for Unsuitable Trades‎ -

FINRA Fines Terra Nova Financial $400000

Finra Fines Phoenix Derivatives, Others a Combined $4.3M – WSJ.com

FINRA fines Citigroup for supervisory violations  $1.5 million fine …

FINRA Fines Double In 2009 – Representing Investors – Blog Archive

FINRA Fines Morgan Stanley, Other Firms – On Wall Street

FINRA Fines H&R Block Financial Advisors for Inadequate …

FINRA Fines Citigroup $600000 for Failing to Supervise Trading …

FINRA Fines MetLife Securities, Affiliates – ABC News

The above is all fairly recent.  Do these fines against these firms indicate that FINRA is protecting you well OR that if protections were adequate, there would not be so many fines?  You will need to be the judge.

It is clear however, that these firms  (notice that many are large and well known to you) seem to be little interested in your benefit or profit and are complacent to break the rules.  And that’s the point of this post.  Don’t trust anyone in the investment or insurance industry without asking questions. It’s not that you should not trust, a necessary element for a healthy economy, but get all of your questions asked and issues explained to your satisfaction.  Don’t simply take anyone’s word for the facts.  Get the evidence before you invest or buy insurance.

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Invest for Retirement- The Right Way

You mess up your own retirement investing

While it seems that the economy, interest rates or the stock market has much to do with your retirement financial success, your own actions may account for more of your success or lack thereof, then you care to admit.  Morningstar, the well known mutual fund research firm, estimates that investors sacrifice a lot of return by buying and selling at the wring time.

To estimate the impact of poor timing, Morningstar calculates a figure that it calls investor returns. This represents how much the average dollar in a fund actually returns. If investors buy at the peak and sell at the trough, the investor return will be low. In contrast, total returns indicate how much you would have gotten if you invested at the beginning of a period and stayed put. To appreciate the importance of investor returns, consider that CGM Mutual returned 4.1 percent annually during the decade ending in May. But individual investors, because they bought at peaks and sold at troughs, the investor return for the fund was only 2.6 percent.

So in the above example of CGM mutual, investors would have had 57% more return had they not traded and just held the fund.  People trade too often and make these timing mistakes for two reasons:

1. Investors (you) get too much useless information–they listen to CNBC, read the Wall Street Journal, listen to their friends opinions and act on all of this information while it should all be ignored.  Not only is ignorance bliss, it can make you money.  Realize that all of this input is OPINION, not fact, and there are no “experts” in the financial arena (okay, maybe we can call warren Buffet an expert) .  While these people who position themselves as experts may have years of experience or degrees from great schools, they cannot forecast the future any better then you.

2. Investors (you) react emotionally.  Even if investors attended only to the facts such as unemployment data, trade flows, currency exchange rates and other hard data, they don’t have any system or model for their decisions and will buy or sell based on how they feel.  Using emotions to make investment decisions will make you poor

If you would like a comfortable retirement, reduce or eliminate your exposure to financial opinions. Additionally, if you receive any factual economic information, wait 48 hours before you make any financial decision. Last, never look at the direction of the market to influence your decisions.

Get the Retirement Financial Guide to keep you on course
(click on the graphic below)

Financial Advisors who seek to help retirees with sound decisions: ProspectMatch

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Reverse mortgages shift gears

Ann Tubbs and Ehtesham Majid left behind their house in Moraga more than
two years ago to enjoy the urban lifestyle of San Francisco. The
retired couple ended up renting a place in the city but eventually
hoped to buy a home, a place they could personalize and make their own.
ß Now, a new program made possible by federal legislation passed last
year to address the foreclosure-driven housing crisis is also helping
seniors use a reverse mortgage to help buy a home, provided they can
come up with a large down payment. Before the Home Equity Conversion
for Purchase program rolled out in January, seniors 62 years and older
could only use reverse mortgage loans to draw out tax-free payments
from the equity held in an existing home while continuing to live in
it.

Tubbs and Majid used the new program to help purchase a $625,000
two-bedroom condominium located downtown near the city’s waterfront.

“We like city living. We like to walk around at night and look in
windows,” said Tubbs, who retired from a 30-year-career at Planned
Parenthood. She and her husband moved into their new home in August.

“It’s a great program for people like us. We don’t have any children
and want the urban lifestyle,” said Majid, a retired software engineer.

Many lenders are starting to offer these new loans in addition
to traditional reverse mortgage products. But as with traditional
reverse mortgages, there are costs involved that can add thousands of dollars to the loan amount,
which grows over time and has to be repaid after the last borrower
leaves or sells the property or dies and the home is passed on to
heirs.

Optimistic investors more active in retirement planning, Fidelity says

 

Optimistic investors tend to be more
active retirement planners than pessimists, according to data released
by Fidelity Investments today.

Out of the 1,000 husbands and
wives who participated in Fidelity’s survey, 89% of couples had one
partner who tended to be more optimistic than the other and was more
involved in making decisions about retirement.

More than 80% of optimists said they expected a comfortable lifestyle in retirement, while just 61% of pessimists agreed.

When
the recession hit, 22% of pessimists said, they panicked and wanted to
flee the market, compared with just 11% of optimists. Meanwhile, 77% of
optimists — but only 57% of pessimists — wanted to stay the course.

 

Although 27% of optimists have completed a detailed income plan to
lay out their retirement finances, just 15% of pessimists have done so.

A quarter of pessimists — more than double the number of
optimists — aim to preserve their money and tend to accept
considerably lower returns. And 45% of pessimists, compared with 33% of
optimists, said they were worried about risks to their retirement
funds, like the possibility of Social Security being reduced.

Most Affordable Places to Retire

These days, the idea of retirement can be a little scary. With the stock marke’s fall last year, taking 401(k) and IRA account balances with them, and the cost of everything going up, the thought of going onto a fixed income and retiring from your job is very daunting. Fortunately, one thing you can do to help mitigate all those risks is move to a place in the United States, or beyond, that favors retirees.

That’s why I always enjoy articles that point out the best and most affordable places to retire. Whether it’s because of good home prices or a lower cost of living or just favorable tax benefits for retirees, these lists offer a great start if you’re deciding on a move.

BusinessWeek has published their latest survey of the best places to live and tops on the list is Tucson, Arizona. With 284 sunny days and a cost of living index of 109.44, so close to average (100) in the US.

Tucson, home of the University of Arizona, is a scenic, affordable place to retire. It is surrounded by mountains and the dry beauty of the Sonoran desert. It has its own airport, just six miles from downtown Tucson, more than 100 parks, a good public transportation system, and plenty of public and private golf courses. The university and University Medical Center are among of the state’s largest employers.

When Does a Reverse Mortgage Make Sense?

Reverse mortgages have recently come into the spotlight as a band aid for seniors with cash flow problems. Unfortunately, the media attention has been generally negative, focusing on a small set of shady brokers that give the entire niche a bad name.

Despite working in the mortgage industry, I’ll be the first to tell you that reverse mortgages are NOT smart for every situation because of the high up front cost. However, if you qualify and need to tighten your financial belt a bit, a reverse mortgage could make sense. Here’s a few situations where a reverse mortgage could be a sound financial decision.

If you’re retired and don’t have any cash left over at the end of the month. Some seniors are still paying a mortgage payment every month and don’t have much left after living expenses. With a reverse mortgage, individuals in this situation could completely get rid of that monthly mortgage payment. Most likely that would amount to freeing up over $1,000 every month.

If your home is paid off but your investment or pension income isn’t paying the bills. In the same vein as the first situation, it might make sense to pursue a reverse mortgage when a homeowner has a large chunk of equity in the home and their monthly income is insufficient. Equity can be cashed out up front or as a monthly payment like an annuity.

If you have high interest debt on your home or some other asset. This is a less common use for reverse mortgage proceeds but in some cases it makes sense. Say for instance, you have a home equity line of credit at 8% or more. That amount could potentially be refinanced at a lower rate or just paid off in full with a reverse mortgage.

Like any loan program, every situation warrants a individual assessment from an experienced professional. If you think a reverse mortgage might make sense, I encourage you to check out our article on the pros and cons of a reverse mortgage and check out our other resources.

Brandon Laughridge is the editor of the Mortgage Loan Place Blog and specializes in educating consumers on the merits of FHA, VA, and Reverse Mortgage programs. To learn more, please check out the MLP blog or follow Brandon on Twitter.

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