By now just about everyone in the country is acutely aware of the economic and personal financial disaster the so-called “fiscal cliff” poses to just about every American household. The looming deadline of January 1st, 2013 draws nearer with every wakened morning, and Congressional members as well as the President are all-consumed in resolving this coming crisis. But many retirees, perhaps readers of this letter included, are asking: what exactly is the fiscal cliff, and why should I be concerned with it? These are simple and reasonable inquiries. But the answer you’ll receive depends on who you ask. But if you’re reading this letter, then you’re asking us. And if you’re asking us, you’re going to get an accurate, straight-forward answer that’s not specifically designed for...

Low interest rates are a tool that policy makers use in an effort to boost economic growth. With low rates, the cost of credit for businesses and consumers is lower. The Federal Reserve hopes that the low-cost money will lead to increase spending. Ideally businesses will access credit to expand and hire more employees. Consumers will increase spending, in theory, using inexpensive loans to fund large purchases like homes and autos. The downsides of low interest rates While low rates benefit borrowers, they hurt savers. Many people have followed the advice of financial planners over the years and diversified their savings into stocks and bonds. Using history as a guide, almost everyone, including many experts, expected the interest rates on bonds and other fixed income investments to provid...

Nationally, unemployment has elevated to a stubborn level, and has been doing so now for several years. It feels like 8% unemployment is normal and something workers will have to adapt to. High unemployment means there are few chances to switch jobs and it also means it will be difficult to find a new job after losing one. This is certainly one of the biggest problems facing the nation today and we hope that our nation’s leaders are working towards a solution. But the truth is 8 percent unemployment is isn’t as bad as it could be, considering the double digit levels seen in Europe overall, or the 26 percent unemployment seen in Greece and Spain. Unemployment hampers retirement There are significant drawbacks to unemployment at any age, but the potential financial harm might be grea...

MarketWatch recently offered a surprisingly upbeat assessment of retirement planning. The news service reported that, “One third of people close to retirement said they don’t know how much money they will need to cover basic expenses in retirement, according to a new study.” Allianz Life Insurance Company of North America also surveyed some 1,000 U.S. residents who were between the age of 55 and 65. Questions covered were what concerns retirement planning raises and how much money respondents think they need to retire. It seems optimistic to us that two-thirds of those facing retirement within the decade know how much money they will need. There are just too many uncertainties in life and in the current market environment, but figuring out how much needs to be saved for retirement: ...

To save money and improve their competitiveness in the market, GM is offering some retired workers a one time, lump sum payout instead of monthly checks guaranteed for life. Other companies may follow and retirees are being called upon to make a difficult choice of whether or not they should accept the payments. As we have often said, with this or any other financial decision, the answer is: it depends. Why lump sum pension payouts are becoming popular Financial planners will be available to help retirees make the choice. That is itself a factor that needs to be considered in the decision. Professional planners come at a price and their annual fees along with other costs associated with managing the money will reduce the value of the pay out. However, with pensions, there’s a lot mor...

In a recent study, the Center for Retirement Research at Boston College reviewed standard retirement options and showed a way to boost your Social Security benefits and retirement income for life. The study began with an overview of traditional approaches to generating retirement income. Many very wealthy people once lived off the interest from their investments. This strategy would invest the principal in low-risk securities like Treasury bills and meet monthly living expenses with the interest payments on those investments. According to the study, this would deliver income of about $750 a year on a $100,000 investment. Only the very wealthy could even consider this approach in the current environment. Annuity income lasts, but the payout is small Other retirees have drawn down the princi...

May was a tough month for investors. Major stock market indexes moved lower, and by the end of the month stock market investors had seen big gains from the first quarter of 2012 wiped out. Many financial advisers urge investors to diversify into investments like gold to protect them against stock market declines, but that strategy didn’t work this time – gold also suffered a significant price decline in the month. Bonds gained, but that means the yield fell even more on income investments, and the income from reinvested profits will continue to be very low while the risks of higher inflation and declining principal could lead to long-term losses in these investments. 18 of 21 economic reports unfavorable for May For now, the risk of inflation and higher interest rates seem remote, ...

Let’s start with the good news. With interest rates at record low levels, borrowing money is less expensive than it has ever been. That means this could be the best time to take on debt, even if you are retired. A reverse mortgage could be a smart way to borrow. Low interest rates make this loan very cheap and there are no monthly payments required with a reverse mortgage. No loan offered by a bank or financial services company is ever free, true…but reverse mortgages are among the most convenient way to borrow. Homeowners over the age of 62 can access the cash value of the equity in their homes without having to sell their home and without adding a monthly bill to their budget. The bad news associated with low interest rates is that home prices won’t be driven to a rapid recover...

Retirement planning can be a daunting task. Many experts warn that you should only use about four percent of your assets as income each year in order to be sure that you have enough money to live on. They then add up the amount of investments you have in stocks and bonds, find four percent of that and announce that you have very little money to enjoy what should be among the best years of your life. Imagine how much more income you could have if you included the value of your home in that calculation. Or don’t bother “imagining” it. The fact is that it’s very easy to turn the equity value of your home into cash. Increasing income with no monthly mortgage payment With a reverse mortgage, you can increase the amount of retirement income that is available to you. A rev...

Student debt is a big story now that the total outstanding figures hover around $1 trillion. College graduates have historically earned more than graduates, so the debt to attend school is widely viewed as an “investment” for many. Since a college degree can add more than $1 million to the average person’s lifetime earnings, according to the Census Bureau, $50,000 in debt seems like a rather small up-front outlay. Unfortunately for many college students, averages can be deceiving. If an average person has dinner with a billionaire, the average net worth at the table is $500 million per person. Digging deeper than the averages, we learn that one person has a net worth of $1 billion and the other has a net worth of zero. There is really no one who is near the average sitting at...