We discussed many topics in this Retirement Blog such as safe retirement investing, when to take social security, how to save on taxes…etc. One of the favorite places for retirement nest eggs is bank CDs. While this choice is rock solid safe and easy to access in case of an emergency, it may not be appropriate for all of your retirement money. Bank CDs are like chocolate – a good thing that can be overdone. In this month’s Internet video seminar we’ll discuss:

Far too many retirees just blindly put all their retirement money in short-term bank CDs without thinking about all the extra taxes they’ll be paying and the higher interest rates they can get elsewhere. Also, if bank rates are less than the rate of inflation – and that’s the case today – the longer your money stays in the bank the less it will buy. There are other safe alternatives that may be suitable for your retirement money, and you owe it to yourself and your loved ones to get as much return as possible without taking risks. The more income you have in retirement, the better you can live.

This Internet video seminar is free, educational and accessible on-line. You don’t have to leave home, can tune out anytime and remain anonymous while you learn more about your retirement alternatives. My objective in this free presentation is to help you and your loved ones make better retirement decisions. I sincerely hope you’ll register now and plan on joining in.

- Shelby Smith, Ph.D.

<<Update>> If you missed April’s Retirement Video Seminar online you may watch the re-broadcast on “When Bank CDs Make Sense” by going to the video library section of this website.

Many of you are in the red zone right before retirement, or you’ve already retired. No doubt your number one fear is running out of money in retirement. You’re part of a very large and growing demographic force: 35 million over age 65, 50 million drawing Social Security and 78 million baby boomers now turning 62. This means the future demand for everything used by the “retirement set” will increase, and “retirement prices” will rise dramatically. Many of you may have accumulated a retirement nest egg in a pension account, will draw a company pension and/or have other savings and investments earmarked for retirement. Where should you keep your retirement money?

If you’re keeping up with economic and financial developments, here’s what you’re seeing: sub-prime credit meltdown that has destroyed housing and is now spilling over into automobile debt and credit cards; highly volatile stock and bond markets; a weak dollar fueling higher prices for oil and other goods; more unemployment and rising inflation; retail sales, consumer confidence and new jobs creation in sharp decline; drastic interest rate cuts by the Federal Reserve to avoid a recession; a money giveaway stimulus package from Washington to prop up the lagging economy; widespread talk of recession and stagflation. These all add up to troubled economic times which should prompt you to review where you have your retirement money.

Learn about “safe” retirement planning today.  If you missed the video webcast on “Economic Outlook for Retirement Investing” you may watch the re-broadcast seminar by going to the Retirement Video Library Or by using this link >>

You’ve worked hard during your lifetime to accumulate assets to pay for your retirement. You’ll soon be knocking on the door to retirement, or maybe you’ve already entered, and it’s time to check out the new environment. Here are some

Inflation: According to the Department of Labor, during the last 25 years, overall prices have risen 115%. The average annual increase has been 3.1% — meaning an item costing $1 on 12/31/1981 would have cost $2.15 on 12/31/2006. An individual living on a fixed income in retirement over the 25-year period would have only 47% of the purchasing power today that he/she had in 1982. Given the recent run-up in oil prices, the looming federal deficit and global political situation, there is little optimism future inflation will be lower. Inflation for retirees can be expected to worsen as the demand for health care escalates in response to four million baby boomers a year turning age 60 – that’s one every eight seconds. This will continue through 2024. Medical advances have made giant strides in increasing life spans which means even more pressure from an aging population. Over the same 25 years, the medical care component of the Consumer Price Index (“CPI”) shows that what cost $1 in 1982-84 now cost $3.36. Since health decreases with age, you’ll probably be spending a lot more on medicine, doctors and hospitals during retirement than during your working years. This will complicate things as you’ll probably be living on mostly a fixed income. With 61% of Americans believing they’ll need at least $500,000 in accumulated assets in order to retire (Source: Retirement Corporation of America, USA Today), there exist a huge gap for many retirees. Make sure your retirement plans include inflation of not less than 3.5% annually.

Taxes: There are so many taxes we seldom stop to add them all up. Consider the following partial list: federal, state and local income taxes; sales taxes; property taxes; gasoline; alcoholic beverages; tobacco; telephone; and if you work, add Social Security and Medicare. Make no mistake about it, taxes levied on businesses – FICA, unemployment, franchise, income, etc. – are passed to consumers as higher prices. All the various taxes were recently added up and amazingly the marginal tax rate exceeded 40% regardless of income level (Source: NBER, Kotlikoff & Rapson). In retirement you’ll even pay taxes on your Social Security unless you have a very low annual income or your money is in tax-deferred annuities. You can do something about the tax bite in retirement, and plans should be tax efficient. For example, investigate the use of tax-deferred fixed annuities so that earnings are not taxed until withdrawn for use; use qualified money first in retirement and postpone Social Security benefits as long as possible; consider the feasibility of putting money into a Roth IRA that grows tax free. Unsuitable Risks: Safety of principal should be your primary objective in retirement with growth a distant second. Over long periods you may earn more by putting your money at risk in the stock market, but you’ll need the discipline to ride the market cycles and postpone the use of your money until the long term. Of course, if you have more than needed for your retirement – don’t forget inflation and taxes – then you can afford to take risks with what you’ll not need. The fact is most retirementminded Americans consider growth their number one objective – that’s why the first question is always “how much will I make”. The first question should be “how safe is my money”. Will Rogers said it best: “I’m more interested in the return of my money than the return on my money”. If you have your retirement money in an investment whose value is determined by the market (stocks, bonds, diversified portfolio, commodities, hedge funds, etc.) you are taking risks and could lose all or some of your retirement nest egg. There are no exceptions: “higher potential earnings mean higher risks”. When you invest money in risky places, there are no guarantees you’ll get it back. When you put money in safe places, you are guaranteed that you’ll get it back with interest if held for the stated term. If preservation of principal is your prime objective, then a safe money place is your only option.

Going It Alone: Not working with a financial advisor is probably the biggest risk you’ll take with your retirement money. Retirement is the largest purchase you’ll ever make, and you can’t borrow money to pay for it. The money you’ve saved is all that is between a worry-free retirement and panic – so don’t attempt to navigate the hazardous world of investments without a financial advisor. Professional help doesn’t cost, it pays.

Get the details, read eReports and watch 10 to 30 min Retirement Video Seminars under the Retirement Planning section on The Retirement Pros website http://www.theretirementpros.com/retirement_planning.php

In a recent article in Schwab’s customer magazine (Charles Schwab on Investing, Winter 2007) how to develop tax strategies was the subject of “Fixed Income for Everyone” [page 29-32]. The curious thing was that in this discussion of “fixed income” not once was annuities mentioned — isn’t that curious since annuities are the only tax-deferred fixed income investment available outside of 401(k), IRA, etc. accounts. Why would Schwab not talk about annuities? I’m glad you asked…Schwab is a brokerage firm and brokerage firms sell securities — not life insurance products. Yes, they could have talked about the fee-loaded, under-performing variable annuity but it would have been impossible to talk about variable annuities without mentioned their super safe no-downside-possible-if-held-to-term fixed index annuities. Schwab didn’t mention fixed annuities because they don’t make their money selling annuities — think mutual funds, stocks, bonds, etc. This pinpoints the problem with brokerage firms, stockbrokers, financial columnist and others who make their living selling or touting securities — they never mention the super safe alternatives life Bank CD, U.S. Government Savings Bonds and Fixed Annuities. Unfortunately, this means that mainstream retirement-minded savers who are risk averse never hear about how to keep their money safe from loss — they only hear about mutual funds, stocks, bonds, diversified portfolios, etc. that all carry the risk of loss. And, what is the one thing a retirees — or near retiree in the red zone — can’t afford because they have no way to recover from: right, losing part of their retirement nest egg because the market tanks. I still have a vivid memory of the market meltdown in 2000-2002 that came with the dot.com bust — many would-be retirees had to postpone their plans or actually go back to work because they they lost substantial amounts of their retirement money. Ironically, on page 6 of the same Schwab magazine the following appeared:
“Many older workers saw their retirement portfolios balloon during the late 1990s bull market and opted to retire early. However
the bursting of the technology-fueled bubble and the resulting bear market between 2000 and 2002 dramatically devalued those new
retirees’ portfolio. Subsequently, some Americans who had taken early retirement found they had to return to work.”

When will this lesson be learned? There is only one question you need to answer before committing your money to the market: What will I do if the worse case outcome become reality? If you don’t like the answer, don’t put your money at risk.

Prices jump more than expected Higher gasoline prices bring big jump in overall prices, larger rise in core prices than forecast.

EW YORK (CNNMoney.com) — Prices paid by consumers rose faster in November, lifted by a spike in the price of gasoline, as the government’s key inflation measure came in higher than Wall Street forecasts.

The Consumer Price Index, the key measure of inflation on the retail level, rose 0.8 percent in the month, up from the 0.3 percent rise in October. Economists surveyed by Briefing.com had forecast a 0.6 percent rise in overall prices.

It was the biggest jump in prices since September 2005, when gasoline prices surged higher in the wake of Hurricane Katrina. There was a similar impact of higher gasoline prices this time.

The report showed overall energy prices up 5.7 percent, with gasoline up 9.3 percent. In addition food prices, another recent driver of inflation, were up 0.3 percent.

http://money.cnn.com/2007/12/14/news/economy/cpi/index.htm