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Alternative Approaches to Retirement Planning

Is the conventional wisdom for everyone?

 

Provided by MidAmerica Financial Resources

    

Questioning traditional assumptions about retirement planning can be illuminating. Some retirement planners and economists argue that they need to be reexamined.

      

Does most retirement planning focus on the future at the expense of the present? One noted economist makes that case. Laurence Kotlikoff, the former White House economic advisor who writes for PBS NewsHour, contends that your retirement savings effort should be structured in a way that allows you to protect your standard of living today and tomorrow.1

  

A key question in retirement planning is “How much will you need to spend in the future?” Kotlikoff thinks the appropriate question should be “How should you gradually adjust your household spending as you grow older?” He argues that basing your retirement planning on a projected retirement income target is faulty.1   

  

As an illustration, he references the example of what you do when you have errands to run before you catch a flight. The wisest thing to do is to start with your departure time and think backward. (How early do you have to be at the airport? How much time will you need to complete errand A and errand B? How much time should you allow for travel between A & B and after B?) This is what we usually do, and how we figure out when to leave home with enough time to accomplish everything. You plan by looking backward from the future.1

   

Kotlikoff thinks that typical retirement planning only looks forward. It projects an income target and implies that you have to save $X per year or per paycheck for X years to build a sufficient nest egg to generate that income. This amounts to mere guesswork, he believes, and invites two potential problems. One, if the retirement income target is set too high, you can end up saving more for retirement than you really need and injure your standard of living before retiring. Two, if the retirement income target is set too low, you can end up spending more than you should before you retire and saving less than you need. (And there’s another question. Will your household spending in retirement match what it was years before? Maybe, maybe not.) Kotlikoff thinks that lifetime spending and saving plans have more merit – again, planning by looking backward from the future.1

   

Is saving overrated? It is pounded home that Americans aren’t saving enough for retirement, but some people don’t think saving is the only step to retiring well. In 2013, retirement planner Joe Hearn (one of MarketWatch’s RetireMentors) posted a column noting several other tips to entering retirement in better financial shape. One, retire without debt. Two, retire with a paycheck (start a small business or work part-time). Three, don’t claim Social Security at 62. There were other pointers, such as retiring to a cheaper part of the country (or world) and going overseas for major surgeries. (As an example, the largest cardiac hospital in the world is India’s Narayana Hrudayalaya Health Center, which is highly regarded and charges about $2,000 for open heart surgery.) If you haven’t saved much for retirement, alternative financial moves like these (and others) could conceivably leave you with lower expenses and more money to live on or invest.2

 

Should you borrow money & invest it for retirement? This idea definitely isn’t for everyone; it was championed in 2010 by Yale University economists Ian Ayres and Barry Nalebuff. As twenty-somethings have time on their side but not usually a lot of money, Ayres and Nalebuff contended that young people would do well to borrow money and invest it in equities. You don’t need to see a loan officer to make this happen, as there are ways to do it through brokerages; a family loan could also be made pursuant to the same goal. As the risks are potentially major for borrower and lender, you don’t see many such arrangements.3

    

How about asking your employer for a second retirement plan? Some people have the leverage to pull this off. In particular, doctors and executives without much in the way of savings can make a valid argument that they need (and should have) a deferred compensation plan in addition to the usual qualified retirement plan, as Social Security payments won’t seem large enough when retirement comes. It helps, of course, if they have worked for the employer for quite some time. A reasonable benefit from such a plan would = number of years that the executive or doctor has worked for the employer x 2.0%.

 

With many people finding it a challenge to save for their futures, it isn’t surprising that these unconventional moves are getting a look. 

 

MidAmerica Financial Resources may be reached at 618.548.4777 or greg.malan@natplan.com.

www.mid-america.us

     

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Citations.

1 - pbs.org/newshour/making-sense/make-your-standard-of-living-the-basis-for-all-financial-planning/ [3/31/14]

2 - marketwatch.com/story/7-alternatives-to-saving-for-retirement-2013-09-27 [9/27/13]

3 - money.usnews.com/money/retirement/articles/2010/07/06/3-unconventional-retirement-investing-strategies [7/6/10]


Weekly Economic Update

MidAmerica Financial Resources Presents:

WEEKLY ECONOMIC UPDATE

 

WEEKLY QUOTE

              

“It is unwise to be too sure of one’s own wisdom. It is healthy to be reminded that the strongest might weaken and the wisest might err.”

     

- Mahatma Gandhi

      

   

WEEKLY TIP

             

When you get a raise, consider it in terms of the extra money you could save, not in terms of the extra money you could spend.

  

   

WEEKLY RIDDLE

            

It flies, but has no wings. It slips away, but cannot be held in the hand. What is it? 

     

 

Last week’s riddle:

It can be told, played, and cracked and it can even be practical as well. What is it?   

   

Last week’s answer:

A joke.

July 21, 2014

    

STOCKS ADVANCE, EVEN WITH ANXIETIES

The crash of Malaysia Airlines Flight 17 in Ukraine, a ground offensive by Israel into Gaza: these headlines gave investors pause, but M&A action and earnings reports sent stocks higher for the week. Thursday, the CBOE VIX jumped 32% to settle at 14.54, yet the S&P 500 closed just 1.2% lower. The 5-day scorecard: DJIA, +0.92% to 17,100.18; S&P 500, +0.52% to 1,978.22; NASDAQ, +0.38% to 4,432.15.1,2,6

    

RETAIL SALES, WHOLESALE PRICES RISE IN JUNE

Overall U.S. retail sales were up 0.2% last month; the gain was 0.4% with car buying factored out. The Commerce Department revised the May gain 0.2% higher to 0.5%. After retreating 0.2% in May, the headline Producer Price Index advanced 0.4% in June; the core PPI rose 0.2%. Annually, producer prices were up 1.9%.3,4

       

FEWER HOUSING STARTS LAST MONTH

The Census Bureau noted 9.3% less groundbreaking in June, plus a 4.2% retreat in building permits. Single-family starts dipped 9.0% to the slowest annualized pace since November 2012.5

  

HOUSEHOLD SENTIMENT DIPS

July’s preliminary University of Michigan consumer sentiment index came in at 81.3, missing expectations (economists surveyed by Briefing.com forecast an 84.0 reading). The index was down 1.2 points from its final June mark.3

  

THIS WEEK: Earnings from Netflix, Skechers, Expedia, Texas Instruments, BB&T, Twitter, Royal Caribbean, CBRE, Halliburton, Hasbro, GNC, Electronic Arts, Mitek and Chipotle arrive Monday. Tuesday offers the June CPI, June existing home sales numbers and earnings from Apple, Altria, Broadcom, Kimberly-Clark, Gannett, Ingersoll-Rand, Comcast, Coca-Cola, TripAdvisor, Lockheed Martin, The Travelers, State Street, Verizon, Alleghany Technologies, Harley-Davidson, McDonalds and Microsoft. Wednesday sees earnings from AT&T, Macerich, Northrop Grumman, Varian, Whirlpool, O’Reilly Automotive, Boeing, Biogen, Citrix, Norfolk Southern, Delta Air Lines, PepsiCo, Qualcomm, Facebook, Dow Chemical, Costco, CoreLogic and General Dynamics. Thursday, June’s new home sales report and new initial claims figures accompany earnings from Ford Motor Co., General Motors, VeriSign, DR Horton, Pulte Group, Raytheon, Union Pacific, Nucor, Hershey, Ingram Micro, Dunkin Brands, Pandora, Starbucks, Dr. Pepper Snapple, Invacare, Starwood Hotels & Resorts, VISA, Jet Blue, Eli Lilly, Under Armour, Noble Energy, Amazon, Airgas, Baidu, 3M and Southwest Airlines. Friday, a report on June durables complements quarterly results from Colgate-Palmolive, Tyco, Xerox and Stanley Black & Decker.    

  

% CHANGE

Y-T-D

1-YR CHG

5-YR AVG

10-YR AVG

DJIA

+3.16

+9.98

+21.98

+6.94

NASDAQ

+6.12

+22.73

+30.48

+13.53

S&P 500

+7.03

+17.10

+25.00

+7.97

REAL YIELD

7/18 RATE

1 YR AGO

5 YRS AGO

10 YRS AGO

10 YR TIPS

0.26%

0.38%

1.81%

1.96%

 


Sources: USATODAY.com, bigcharts.com, treasury.gov - 7/18/146,7,8,9

Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly.

These returns do not include dividends.

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Securities and advisory services offered through National Planning Corporation (NPC), Member FINRA/SIPC, a Registered Investment Adviser.
MidAmerica Financial Resources and Malan Financial Group are separate and unrelated companies to NPC.

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world's largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Past performance is no guarantee of future results.  Investments will fluctuate and when redeemed may be worth more or less than when originally invested. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.

 

Citations.

1 - blogs.wsj.com/moneybeat/2014/07/18/about-that-big-vix-spike/ [7/18/14]

2 - google.com/finance?q=INDEXSP%3A.INX&ei=44bJU-jFFer8igLgzYGgAg [7/18/14]

3 - briefing.com/investor/calendars/economic/2014/07/14-18 [7/18/14]

4 - investing.com/economic-calendar/ [7/18/14]

5 - reuters.com/article/2014/07/17/us-housing-starts-idUSKBN0FM1FT20140717 [7/17/14]

6 - usatoday.com/money/markets/overview/ [7/18/14]

7 - bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=7%2F18%2F13&x=0&y=0 [7/18/14]

7 - bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=7%2F18%2F13&x=0&y=0 [7/18/14]

7 - bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=7%2F18%2F13&x=0&y=0 [7/18/14]

7 - bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=7%2F10%2F09&x=0&y=0 [7/18/14]

7 - bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=7%10F2%2F09&x=0&y=0 [7/18/14]

7 - bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=7%2F10%2F09&x=0&y=0 [7/18/14]

7 - bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=7%2F19%2F04&x=0&y=0 [7/18/14]

7 - bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=7%2F19%2F04&x=0&y=0 [7/18/14]

7 - bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=7%2F19%2F04&x=0&y=0 [7/18/14]         

8 - treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyield [7/18/14]

9 - treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [7/18/14]





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