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Keith Springer is the author of "Facing Goliath: How to Triumph in the Dangerous Market Ahead," radio host of "Smart Money with Keith Springer" on 1530 KFBK, editor of the Smart Money Newsletter, a market technician, a financial writer, multinational philanthropist, and... More
My company:
Springer Financial Advisors
My blog:
Keith Springer's Financial Blog
My book:
Facing Goliath: How to Triumph in the Dangerous Market Ahead
  • The Rules Of Retirement Have Changed

    Let's face it; the rules of retirement have changed. What we were told to do 30, 20 even 10 years ago now seems like a pipe dream. "Be loyal to a company and you'll get a pension. Save a little money in a 401k and buy a house. When it's time to retire your investments and your home will have grown many times over, so you'll have plenty of money" we were told …"plus Social Security will always be there for you, too!" Perhaps we were sold a bill of goods or maybe it is the natural order of things, but one thing is for certain: the rules have definitely changed and it's time to take the risk out of retirement and take control of your finances…because you can't count on Social Security being there for you.

    With pensions nothing more than a fading memory for most, 401k's that are now 201k's, Social Security turning to dust before our very eyes and the home we were going to sell into retirement for a big profit now a veritable pipedream, it is time for investors to take control of their financial future. A combination of unpredictable markets, the erosion of defined benefit plans, the uncertainty about Social Security, and longer life expectancies means a new paradigm is upon us in retirement planning challenging the long-held beliefs in financial planning.

    In 1939, before America entered World War II, life expectancy was just over 59 for men and slightly above 63 for women. This means that when Social Security was implemented with an eligibility age of 65, the average American would not live long enough to access the benefit. Gee thanks, Uncle Sam! With life expectancies climbing fast and medical advances extending life longer every day, you had better plan to spend a whole lot of time in retirement, and you don't need me to tell you that you don't want to do it without any money!

    Whether most people lack the resources or are simply unwilling to face the realities of what it will take to retire comfortably, most retirees are not ready for the leap. Every year, more and more Americans move toward retirement with insufficient savings, and with this the country is moving into dangerous territory. People are living longer these days, a lot longer. Now when I plan retirement income distributions for a couple I have to calculate the expectation that one of them will reach the age of 95. Considering that people over age 65 spend four times as much on healthcare, and that end-of-life care can eat up approximately 80% of your assets, every American had better recalculate their retirement planning strategy, regardless of whether you are already retired or planning to.

    Will you have enough to retire?

    The problem is that people fail to make a provision even remotely adequate for maintaining their pre-retirement lifestyle. Studies found that U.S. savings rates are somewhere between 25% and 38% of the amount required to meet overall retirement needs; that Social Security will make up 80% of retirement income for the least wealthy 20% of retirees; and that at current mortality rates, the average under-funded household faces over 20 years of unfunded living expenses, and rising fast. The answer is clear; it's time to build up that nest egg that we always thought would just appear on its own. Studies suggest that people age 50 and over immediately begin to set aside 13% to 23% of their current gross income.

    Over the past 20 years, self-managed 401k's have increasingly replaced the "pension". Instead of counting on professionals to manage their asset pool (as was the case with a defined benefit plan), workers are expected to make their own long-term investment decisions. More importantly, workers are expected to do on their own what pension actuaries once did with sophisticated computer models; figuring out how the lump sum of their savings nest egg can be translated into an income stream at retirement, and manage it in the proper investment vehicle so that the income stream doesn't dry up or crumble over unpredictable cycles of market returns and today's crazy volatile markets.

    Currently more than half of Americans who are just 15-20 years from retirement believe they are more likely to be hit by lightning than to receive their full due from the government (true statistic). Yet, the average American spends more time researching the purchase of a refrigerator throughout their lifetime, approximately 2 hours, than planning for retirement (also, true). So, why the disconnect?

    Managing your own money is a daunting task. The overwhelming number of choices, accompanied with the fear of making a mistake is paralyzing, and often leads to the wrong portfolio, many times holding assets that were bought for the last bull market and not the next one. This is particularly true with retirees, as many investors still have a portfolio of "yesterday's" investments and not one for tomorrow.

    Many investors were lulled into a sense of complacency with the good stock markets of the 80's and 90's. During that time making money became easy and many thought they were at least

    as good as a professional. However those easy markets have changed. We know that economies rely on more spenders to grow. Through the study of demographics, we also know that people's spending generally peaks at age 48. Unfortunately, the 92 million Baby Boomers are now past their peak spending age and well into their savings phase. This coupled with the fact that the American consumer is massively over-indebted and over-leveraged, implies that the economy is in for a rough ride for several more years. These very issues along with solutions are easily explained in Facing Goliath: How to Triumph in the Dangerous Market Ahead, a must read for every investor.

    With great challenge comes great opportunity. The 1930's are associated with the Great Depression, yet more millionaires were created in America in that decade than any other in American history. There are plenty of places to make money with less risk in this market, if you know where to look.

    One of the mantras I talk about each week on my Smart Money radio show is "Invest for need, not for greed". That is the concept of simply getting the highest returns that your portfolio "needs" with the least risk possible. I have found over and over again that most people take on much too much risk; more than they need, more than they want and often more than they think they have. If you took a big hit in the recent bear market and you cannot replace this money, you are taking on too much risk, even if you clawed your way all the way back. Next time you may not be so lucky.

    Be the expert… or hire one!

    Personal finance and making a retirement plan is serious business. You need to get the fundamentals down pat, spend a lifetime updating yourself on the rules and laws, and learn the ins and outs of calculations for retirement in particular. For instance, did you know that each year a person postpones retirement reduces his or her need for retirement savings by about 5%, while increasing Social Security benefits by 7%?

    Unfortunately, hardly any pre-retiree takes the trouble to figure out that he or she will almost certainly need to plan to live a good 20 to 30 years or more after retirement. In that time, the price level will almost certainly rise dramatically, even at present low levels of inflation. How do you deal with that when most of us can barely afford to have enough to retire on for the first few years after the gold watch?

    In addition, there is the investment management to consider. You can't just read "The Wall Street Journal" for a few months and expect to get it. This is serious business and small mistakes today, whether with too aggressive, or too conservative a portfolio, can create enormous problems tomorrow. Whether you opt for a managed portfolio or go with a guaranteed principle and income program, opportunities are abound. Just make sure you have the right coach to lead you there.

    For some reason, people always think they can take short cuts with their retirement planning. The biggest mistake one can make is to fail to educate themselves or hire the right coach to help them navigate these difficult waters. For some reason, people (especially men), hate to ask for directions. Although this may be a cliché about driving, and I don't know if it's true or not, but it most assuredly is with personal finance.

    It's the distribution and succession, not just accumulation

    For those who do prepare properly, careful consideration must be paid to not only saving and investing the money, but on the proper mechanics on how the assets need to be held in order to maximize your income distribution through your retirement. It does no good to spend your life saving and investing wisely only to give it all back to Uncle Sam! After all, it's what you and your loved ones keep, that counts.

    First class, coach or the bus? It's up to you!

    That voice you hear is not in your head nor is it the one you wish you heard when you were a little kid to warn not to do something stupid. It's real and it demands your attention. There are no do-overs at this point in your life.

    You owe it to yourself and your family. Don't be that guy that runs out of money at 83 years old with plenty of life left because you never stopped to develop a plan, or the one that dies and wasn't organized enough to have a plan for his or her family. Whether you work with me or someone like me, just get it done.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: retirement
    Apr 16 6:25 PM | Link | Comment!
  • Tug Of War Leaves Investors Between A Rock And Hard Place -Recovery Or Not, Where’s My Yield?

    The signs of a recovery are everywhere… from lower unemployment to retail sales to manufacturing. Yet, the spoiler at the party, or perhaps the realists, continue to be Ben Bernanke and the Federal Reserve. Even in the face of improvement, they continue to stand ready to pour more stimulus upon the economy, or more fuel on the fire.

    What do they see that most people don't? After all, at this point in a recovery with reasonably strong economic statistics, rates would normally be rising which would at least give yield hungry investors some return on their low risk money. However there is this tug-of-war going on where some feel the recovery is for real and others believe it is a temporary blip with more pain to come.

    Bernanke's boys are in the latter. They obviously see difficult times returning. Why else are they not only prepared but as excited as little school girls to continue with QE Mini-Me and have QE3 ready to rock? This may seem odd because most of us see inflation, if you eat and drive that is, while the Fed keeps talking about battling deflation. To me the evidence is clear. The current spate of decent economic news is nothing more than the effects of QE2, which began in November of 2010, doing what it's supposed to do. Stimulus takes 6-9 months to feel the effects in the economy and lasts about the same, although it becomes less effective each time due the law of diminishing returns.

    With the positive effects of QE2 likely to wear off in a couple of months, expect a return to slow growth and more stimulus via QE3, which is all the market wants anyway. This is evident every time the market screams higher when Bernanke comments that he's ready with the jet fuel, and sinks when he says it may not be needed.

    Economic conditions are driven by need. The baby boomers have enough stuff. They're not buying their kids school clothes and supplies like they used to, they don't need a bigger house now that the kids are gone and they make their cars last longer because they are not driving junior to soccer practice. They are past their need years and into their savings years. The demographics of an aging population which naturally spends less as it gets older (peak spending occurs at 48 years old) coupled with an already massively over-leveraged consumer is a tsunami not far off the coast and those left unprepared will be stuffed into a dingy without a paddle and an Italian captain.


    Naturally there isn't enough space here to go into detail here, but to learn more about the demographic overhang, how consumer spending will slow and why we are headed for deflation not inflation - essentially where we are, where we're headed and how to prepare, you may want to turn to Facing Goliath: How to Triumph in the Dangerous Market Ahead. It's an easy read and is often referred to being the cliff notes of what's going on in the economy.

    Investors caught between a rock and hard place
    With rates so low and the Fed's continued promise to keep them there, investors in the retirement red zone are caught between a rock and a hard place. They need safe returns with decent yields, and little risk of losing it. Now, I happen to think the enormous liquidity in world markets which I detailed in It's Raining Money! Smart Money Newsletter, will keep the markets strong for a few more months and hopefully through the election, but I wouldn't bet the farm on it. Although, further stimulus will benefit Gold silver and commodity stocks like SPDR Gold Shares (NYSEARCA:GLD), Market Vectors Gold Miners ETF (NYSEARCA:GDX), Newmont Mining Corp. (NYSE:NEM), Goldcorp. (NYSE:GG), Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX), PowerShares DB Gold Double Long ETN (NYSEARCA:DGP) for the not so faint of heart, plus Silver Wheaton Corp. (NYSE:SLW) and ProShares Ultra Silver (NYSEARCA:AGQ) and Fortuna Silver Mines (NYSE:FSM).

    Although it may feel nice when the stock market goes up, the fact is that if you can't afford to lose it, you can't go there. The "red zone" is the period just before you retire and through retirement. It used to be 5 years before but has been moved back to 10-15, due to the lost decade in stocks (the S&P is where it was in 1998!) and the possibility of losing money you can't make back. Younger growth oriented investors can venture into growth stocks such as SPDR S & P 500 (NYSEARCA:SPY), SPDR Select Sector Fund - Financial (NYSEARCA:XLF), iShares MSCI Emerging Index Fund (NYSEARCA:EEM), Emerging Markets Consumer ETF (NYSEARCA:ECON), PowerShares QQQ Trust, Series 1 (NASDAQ:QQQ), iShares Russell 2000 (NYSEARCA:IWM) and iShares FTSE China 25 Index Fund (NYSEARCA:FXI).

    Invest for need, not for greed is our basic philosophy, and which is necessary to triumph in the dangerous market ahead. It will help you not only survive but prosper in your golden years. For some it may simply mean "getting the very best returns with the least risk possible" while for others it may simply be "don't gamble with what you can't afford to lose". Whatever it means to you, take it to heart and make sure you're getting the returns that you need but without all the risk.

    There are plenty of good opportunities out there that get great returns without a lot of risk, if you have a plan and know where to look. Moderate risk investors can venture into Apple (NASDAQ:AAPL), Google (NASDAQ:GOOG), Intel Corporation (NASDAQ:INTC), Microsoft (NASDAQ:MSFT), Cisco Systems (NASDAQ:CSCO), Dell (NASDAQ:DELL), Caterpillar (NYSE:CAT), General Electric (NYSE:GE) and Yahoo (NASDAQ:YHOO).

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Apr 09 3:09 PM | Link | Comment!
  • Is Charlie Sheen Running the Country?-Despite the clown debate in Congress, stellar earnings will keep the market strong

    Politicians can always be expected to do the right thing…after all other options have been exhausted! –Winston Churchill

     

    That is one of my favorite historical quotes, albeit altered slightly. How true it seems. Democracy can be surly at times. The good news is that the debt crisis debate is forcing us to address some of the nation’s long term problems.

    However, once a deal is done, and worry not, there will be one, the market will celebrate the great earnings we’ve seen from most companies. As I have expected, earnings have been great and are now at record highs, yet stock prices are still trading some 15% below old 2007 highs. That fact, along with the intense bearishness among investors, will support the market even in the face of a weakening economy.

    Much of the growth in our economy is coming from an expansion of inventories rather than from demand. Domestic final sales which remove inventories, exports and imports, rose at an annualized pace of just ½% in April-June. However, business inventories climbed 1 percent in both April and May, according to Commerce Department figures released on July 14th. The rise brought the stockpile-to-sales ratio to 1.28 months, the most this year, from 1.27 months in April. To make matters worse, manufacturing companies reported that their stocks of unsold goods expanded further in June. Its inventories index came in at 54.1 last month, up from 48.7 in May. Readings over 42.7 show stockpiles are increasing. Given that demographic trends and an over tapped consumer cannot possibly create meaningful demand, the economy has no chance of a sustainable recovery until the next generation of spenders comes along.

    At some point, the worsening economy will intersect with earnings and stocks, but not yet. Until then, we will continue to see a continuation of QE-Mini-Me, which will keep the economy out of another recession.

    In the big picture, the stimulus is wearing off and the economy is slowing. Imagine that! That’s me being facetious, as I have been saying this all along. It’s also exactly what I discuss, along with where our economy is headed in my exciting new book – Facing Goliath: How to Triumph in the Dangerous Market Ahead. Just this week Goldman Sachs, JPMorgan Chase & Co. and Bank of America- Merrill Lynch lowered their growth estimates to (NYSE:GDP) 2.5%, down from earlier projections of as much as 3.25%. This will certainly keep pressure on Bernanke and the Federal Reserve to hold interest rates near zero and keep up QE Mini-me. As we go, the other stimulus measure will also fail too and they will come along with a QE3, especially as we get close to the election.

    This doesn’t mean that there will not be good opportunities. There certainly will be, it’s just going to be very tricky and increasingly dangerous.



    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Jul 28 5:10 PM | Link | Comment!
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