When Inhertiance is Negative - WSJ

When Inheritance Is Negative - Wall St Journal 1/22/2008
By Marshall Eckblad

People who don't prepare to care for their sick and aging parents could fall victim to what economists call "negative inheritance."

If the term seems foreign, the scenario it describes won't: It is when costs to children caring for their relatives outstrip any gifts or bequests they might receive in return.

To protect against the havoc a negative inheritance can wreak on a financial plan, financial advisers have developed detailed strategies, typically including a combination of family dialogue, long-term-care insurance and proactive management of the parents' remaining assets.

WSJ - Historical Perpsective on Stock Market Corrections

Be Careful Buying January 17, 2008 by Brett Arends, Wall St Journal

Wall Street, as measured by the broad Standard & Poor's 500-stock index, has now fallen about 12% from its peak -- the record level reached just last October.
Many investors assume a stock market "correction" of 10% or more is automatically a great buying opportunity. But that's really a view we've inherited from the big bull market of the 1980s and 1990s.
To get a longer perspective, I looked at all 10% stock-market corrections going back to 1950. I found 20, including the current one. (Yes, they are surprisingly common.)
The big lesson? They don't always pay off as well as you'd hope. In fact, Wall Street on average rose less in the five years following such a correction than it did at other times.
The average five-year price rise following the 19 corrections from 1950 to 2000 was 37%. But the average five-year price rise throughout the entire period was 52%. So much for being rewarded for taking a risk.
And there was wide variation. Let's compare two periods when stocks had fallen 10% from their peak. Those who jumped into the market in April 1973 were still down 16% by April 1978. Those who bought in June 1950, on the other hand, more than doubled their money over the next five years.
This all ignores the effect of dividends, which will smooth the results somewhat. (Usually the lower the stock market, the higher the dividend yield). It also ignores the effect of inflation.
But many investors simply assume that the stock market tends to rally sharply in the years following a selloff. It frequently doesn't.
The reason is that some declines proved brief, lasting a few months at most. (Does anyone remember the slump of October 1955?) Others, though, proved to be a harbinger of big, grizzly bear markets -- like those that began in 1972 and in 2000. On both occasions, the stock market went on to fall by nearly a half before bottoming out.
None of this should scare you away from the market. Long-term investors should probably take advantage of the stock market selloff right now to add to their holdings. But they should think twice before rushing to invest.
Unless you possess a crystal ball, the best way to beat a stock-market downturn is with a three-step plan.
Buy.
But buy small.
And buy often.
Write to Brett Arends at brett.arends@wsj.com1

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NEW LIMITS FOR RETIREMENT PLAN CONTRIBUTIONS

JENNIFER OPENSHAW
The 15-minute tip: Tune your retirement savings
New limits in 2008 juice up savings opportunities
By Jennifer Openshaw
Last update: 11:13 p.m. EST Jan. 16, 2008
NEW YORK (MarketWatch) -- Now that the holidays are behind us, it's time to think about making some financial adjustments for 2008.
There's the usual -- pay holiday bills, reduce debt, review your budget, take stock of where you are financially. But this year we get important changes to contribution limits for individual and small-business retirement plans. These changes can add power to your retirement savings.

Now's a good time to take 15 minutes (at least!) to review your retirement savings, and to see how these changes can boost your nest egg.
New contribution limits
Most importantly, Congress raised the annual limits on traditional and Roth IRA contributions from $4,000 to $5,000 - a 25% increase and a substantial hike from $2,000 in 2001. And if you're over 50, you get to add another $1,000.
Here's a summary:
IRA limits. Annual contribution limits rise to $5,000 with increases up to $500 per year from 2009 forward depending on inflation, for both traditional (deductible) and Roth IRAs.
Catch-up limits. The existing catch-up provision allows an extra $1,000, to both traditional and Roth IRAs, for each participant over 50. So a husband and wife who are both over 50 can now contribute $12,000 per year.
SEPs, Pensions, ESOPs. Subject to income limits addressed below; most income-earning Americans can use IRAs. Additionally, self-employed or small-business owners can use various pension arrangements, and most limits on these rose as well.
New income limits
With IRAs you must check the income limits, which also rose this year. For instance, those with a qualified employer plan can only deduct traditional IRA contributions if their income falls below a certain threshold.
Traditional IRAs are now fully deductible for married-filing-jointly taxpayers whose adjusted gross income (AGI) levels are below $85,000, up from $83,000 last year. The partial deduction threshold rises from $103,000 to $105,000.
Full Roth IRA contributions can now be made for married-filing-jointly taxpayers with AGI up to $159,000, up from $156,000, phasing out to $169,000, up from $166,000.
Surprisingly, it wasn't so easy to find a summary of these changes, though you can find the information if you dig around on the IRS Web site. See this round-up of IRA information on IRS Web site.
The IRS did publish a good summary of the new pension and small-business saving plan limits in October. See the summary on the IRS Web site.
What about my 401(k)?
Now you might wonder about your salary-deferral plans, such as 401(k)s, 403(b)s and the like. Did they up the 2008 limits for these plans, too? The bad news is no. The good news is that the limits were increased in each of the last four years. For example, in 2004 the 401(k) limit was $13,000 with a $3,000 "catch-up" provision; for 2007 and 2008 the limit is $15,500 with a $5,000 catch-up.
You should "tune" now, if possible, to take full advantage.
And don't forget....
Spousal IRAs. This oft-forgotten opportunity helps those couples with one fully-employed spouse. If this spouse earns beyond the contribution limits for traditional or even Roth plans, the second "inactive" spouse can still make a fully deductible or Roth IRA contribution. Income limits (and a 2008 increase) are similar to Roth limits.
Making dollars and sense of the opportunity
You're 50 and you expect to work and contribute for 15 more years. The increased limits allow you to contribute another $1,000 annually, and the catch-up contribution allows another $1,000 -- $6,000 total. Now, if you get a modest 6% return on your IRA, you'll have saved $139,655 by age 65, compared to $93,103 with a $4,000 annual contribution - an increase of $46,522.
Now that might not seem like a lot, but if you "annuitize" or convert that lump sum difference into a monthly payment for 20 years continuing a 6% return, that's $337 per month more in retirement. A comparable contribution from a spouse will double that. Of course, a higher rate of return brings more.
Whether that income is taxable depends on whether you use the traditional or the Roth choice, and what you tax situation is when you begin the withdrawals.
One can't ignore the power of time in compounding. If you're fortunate enough to have 30 years to save, that extra $1,000 per month brings a lot more -- $79,000 more at 6% or $133,000 more at 8%. Combine that with the catch-up "bonus" after you turn 50, and the benefits get still bigger.
Not to mention additional current tax deductions if you go the "traditional" route.
The math is more complex than can be fully covered here. The bottom line: you should take 15 minutes to measure the opportunity - and seize it if you can.

Preferred Stocks - FInancials

December 24, 2007
Getting the Red-Carpet Treatment
By ANDREW BARY
December 24, 2007

Preferred stocks, which are senior to common, trade onthe New York StockExchange. Most have a facevalue of $25, but now couldsell below that. Holders could profit if the issues areredeemed at $25.


WITH FINANCIAL FIRMS LIKE Freddie Mac, Fannie Mae and
Washington Mutual (WM) seeking to shore up their balance sheets in the
face of rising loan losses, the market for preferred stocks has grown active.
Fannie Mae (ticker: FNM) recently issued $7 billion of preferred, while
Freddie Mac sold $6 billion and WaMu $3 billion. These issues join an
estimated $250 billion of outstanding preferred stock, a form of equity that
is senior to common stock but ranks below corporate debt. Preferred
typically carries fixed interest rates, and some issues are convertible into common shares.
Investors are likely to find increasing opportunities in the preferred market, as yields on many issues have
risen about one percentage point since summer, reflecting the sell-off in financial stocks. As the table
nearby shows, preferred stock issued by companies such as Citigroup (C), Freddie Mac (FRE),
Lehman Brothers (LEH) and Merrill Lynch (MER) now yields 7.5% to 8%, while 30-year Treasuries
yield only 4.5%. In addition to higher yields, these securities sport credit ratings of A or better from both
Moody's Investors Service and Standard & Poor's.
Preferred stock generally is sold with a face value of $25 a share, though most
securities now trade below $25. In the case of Fannie and Freddie, we have
listed their most recent issues, which initially were priced attractively, and now
trade above $25. Investors might do better to buy older preferreds from Fannie
and Freddie, some below $25, and others below par value of $50.
There are two types of preferred: the more common trust preferred, which
technically is debt, and regular preferred, which counts as equity. Trust is senior
to regular preferred, but the advantage of regular to individuals is that dividends
are taxed at the beneficial 15% dividend tax rate, while trust is taxed at the full
marginal-income-tax rate.
It can be tough to tell which is which. The recent Freddie Mac 8.375% issue
and the Fannie Mae 8.25% are regular preferreds. "Many times people buy the
wrong instrument," says Robert Willens, an accounting and tax expert at
Lehman Brothers. Firms like Merrill Lynch track the market and distinguish
between the types, both of which trade on the New York Stock Exchange.
Issuers generally can redeem their preferred stock in five years at $25. The advantage to buying preferred
that trades for $20 or $21 is that it carries yields similar to those of higher-priced issues, but doesn't have
the redemption or call risk. Investors in lower-priced preferreds can count on getting nice yields for a
long period, and if the preferred eventually is redeemed at $25, they stand to make a tidy profit.
The danger with all preferred stock is that troubled issuers
stop paying dividends, and companies in extreme straits
sometimes default. Short of financial catastrophe, however,
issuers generally pay their preferred dividends, even if they
cut or eliminate dividends on common shares.
YIELDS ON NYSE-LISTED bonds issued by companies like Comcast (CMCSA), Ford (F) and
General Motors (GM) also have risen in recent months. GM has a series of exchange-traded bonds with
a face value of $25, but with the company under financial pressure and carrying junk-grade credit ratings,
its bonds have fallen lately. The 7.25% issue due in 2041 (XGM) trades at about 16, for a yield of
11.52%; the price is equivalent to 64 cents on the dollar for a standard $1,000 bond. Although GM faces
numerous challenges in coming years, it has struck a labor agreement that will reduce its health-care
obligations significantly.
GM also has several Big Board-listed
convertible bonds that offer an
attractive alternative to the company's
common. The $4 billion 6.25%
convertible (GPM) trades for about 21,
for a yield of 9%. This convert offers a
trade-off: Investors get a lower yield
than on GM's non-convertible, or
"straight" debt, but can exchange the
convert for GM common. The 6.25%
issue converts into GM common at
$47 a share, well above the stock's
current quote of $26. As GM stock
rises, its convertibles also tend to rally.
The yield on debt issued by GM's
finance unit, General Motors
Acceptance Corp., now majorityowned
by the investment firm
Cerberus Capital Management, has
risen amid concerns about GMAC's
mortgage exposure and worsening
credit trends in auto loans. GMAC
debt now yields more than 10%.
THE YIELDS ON PREFERRED
STOCK ISSUED BY real-estate
investment trusts such as Vornado
Realty Trust (VNO), SL Green
Realty (SLG) and Taubman Centers
(TCO) also have increased recently,
reflecting concerns about a weakening
real-estate market. Vornado's preferred
is yielding more than 8%, versus 4% on the common. The preferred lacks the common's upside potential,
but is attractive for yield-seeking investors. It ranks ahead of Vornado common, which has a market
value of $13 billion.
Nearly all major securities firms and many major banks have issued preferred stock. Our table shows a
sampling, but issuers ranging from Bear Stearns (BSC) to HSBC (HBC) rightfully merit inclusion.
The preferred shares of Fannie Mae, Freddie Mac,
Washington Mutual and certain REITs all look
enticing. So do the bonds of Comcast, Ford and
General Motors.


Those looking to bet on a revival of battered Washington Mutual, the country's largest thrift, might
consider its recently issued convertible preferred that carries a dividend yield of 7.75%. The convertible,
now trading around $931, below its $1,000 par value, can be exchanged for WaMu common at $21.25 a
share, a premium to Friday's price of $14. This issue was sold for $1,000, rather than the usual preferred
price of $25.
Hurt by rising loan losses, WaMu recently slashed its common dividend by 73% to an annual rate of 60
cents a share, for a current yield of 4%. WaMu could eliminate its preferred dividend if its financial
situation gets dire, but it will need to pay preferred holders if it wants access to equity capital.
Assuming banks and securities firms remain solvent and interest rates don't rise sharply, preferred stock
could prove rewarding for income-oriented investors. For those with more stomach for risk, GM, GMAC
and Ford bonds with double-digit yields also look enticing.
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Citigroup 7% Preferred

.
Citi Makes an Enticing Offer
Preferred Stock Will Pay 7% Return
January 15, 2008 10:29 p.m.; Page C2

Away from the headlines, Citigroup CEO Vikram Pandit quietly offered the great American public a deal this morning.
Lend the bank some money, he said, and we'll pay you a fat 7% interest rate. The payouts will get the same favorable tax treatment as shareholders' dividends, but will be secure against pretty much anything except a full business meltdown. (In an earlier version of this column, I discussed this in terms of Chapter 11. But while we haven't seen the details of the new convertible preferreds, a full Chapter 11 filing might not be needed for Citigroup to suspend dividends.) Oh, and if Citigroup's fortunes recover you'll get to share in the upside along with ordinary shareholders.
That's quite an offer.
The bank is set to issue $2 billion worth of so-called convertible preferred stock to the public. The prospectus hasn't been issued yet, but the terms should be similar to those offered to a handful of very rich investors in a just-concluded $12.5 billion private placement.
Those investors include the bank's former chairman, Sandy Weill, and Prince Alwaleed bin Talal. So if you buy into the convertible preferreds, you'll be in good company.
The stock will have a 7% yield. These are "preferred" stocks, which means they're a little like bonds. The dividends won't rise: But they are pretty secure, as they should get paid in full before common shareholders get a penny. On the other hand, the dividends should get the same privileged tax treatment as payouts on shares. Oh, and investors will have the ability to swap their preferreds into ordinary shares if the price of the latter recovers 20% from its current depressed situation. In other words, you get a great yield, some pretty good security, and almost all the upside if things improve.
The risk/reward trade-off is compelling. Stay tuned for further details.
As for those already invested in the common stock, they're wondering how much worse it's going to get.
The shares fell another $2 following the kitchen-sink fourth-quarter earnings release1, with its anticipated bloodbath of red ink and job losses.
At around $27, Citigroup stock has now fallen more than 50% from the all-time peak reached barely 12 months ago. The shares literally cannot fall as far as they have already, even if they were to go to zero.
So in a technical sense, the worst is already past. The question remains whether that is also true in a meaningful way, and whether we're near the bottom.
Two things give me pause. The first is that too many people are still asking that question -- the best bottom-fishing is done solo. The second is that we may yet be witnessing, in Citigroup and elsewhere, a monstrous, generational unwinding of financial leverage and excess.
If you think that's a distinct possibility, you probably won't invest in any bank -- in the worst-case scenarios, even the preferred stock would get slammed. But if you assume that U.S. and international capitalism will somehow stagger on reasonably successfully, as usual, then Citigroup's stock is starting to offer attractive risk/reward possibilities.
The first thing to notice is that some big, rich and smart people, such as Mr. Weill and Prince Alwaleed, are pouring in money this morning. Citigroup slashed its dividend -- but, as predicted here, that still leaves the payout looking pretty juicy. (On a $27 share, the yield is 4.7%.) Also, the bank is taking the necessary steps to shore up its balance sheet.
And while the company clearly hasn't been managed well, most of its businesses are in far better shape than the headlines would suggest. It is, after all, the nature of news to write about the airplane that crashed instead of the thousands that landed safely. Even in that disastrous fourth quarter, Citigroup's global consumer revenues rose 13% -- 4% rise in the beleaguered U.S. division, 28% overseas. Transaction-service revenue was up 31%. Revenues from global wealth management, which includes both Smith Barney and the private bank, rose 28%. Total revenues for the quarter were $81.7 billion, even if the bank did earn a mere $3.6 billion in net income.
Citigroup has written down its exposure to subprime mortgages from $54.8 billion to $37.3 billion. It's a lot. But it's a fraction of the $140 billion that has been wiped off the bank's market value since last summer in the growing panic over subprime.
None of this is to downplay the scale of the problems, merely to suggest that at current levels the stock already seems to be pricing in a lot of risk.
The best play, though, may be the new "convertible preferred" stock.
Write to Brett Arends at brett.arends@wsj.com2

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PROTECTING YOUR NEST EGG (FROM WALL ST JOURNAL)

January 16, 2008



Protecting Your Nest Egg in Volatile Times
Today's Retirees Must Control
Risk Even as Longer Lifespans
Mean They Need More Income
By ELEANOR LAISE
January 16, 2008; Page D1

As the first baby boomers hit retirement age, volatile financial markets are increasing the risk this new wave of retirees could outlive their nest eggs.

Sharp market swings can be devastating to retirees who are regularly withdrawing money from their portfolios, by forcing them to sell holdings whose value has just plummeted. What's more, retirees' portfolios can have a tough time recovering from such a hit, because regular withdrawals reduce assets available to achieve future growth.

WHEN VOLATILITY HURTS


Reducing a portfolio's volatility can add years to the life of a retiree's nest egg. Here are some strategies:
• Investors can minimize volatility by diversifying the assets in their retirement portfolio.
• Maintaining a big cash reserve can shield retirees from having to sell stocks in a downturn.
• Some new funds, including ones that sell call options on fund holdings, may help limit volatility.Complicating matters, retirees are being told they need to hold a larger share of stocks in their retirement portfolios. Over time, stocks return more than the traditional retiree choice of bonds, and today's retirees are expected to need more money because they are living longer and facing higher health-care costs. But stocks can add more volatility to a portfolio.

Although investors can't do anything about market swings, retirement advisers are recommending a number of strategies that can minimize volatility and help a nest egg last longer. Holding a well-diversified portfolio will help to reduce sharp swings overall. And having a large cash reserve can shield you if you happen to retire on the eve of a particularly turbulent market period.

Financial firms have also launched a number of new products that they say can reduce volatility while providing a steady stream of income. Among these are so-called covered-call-writing funds, which sell call options on stocks they hold.

Volatility is on the rise. The Chicago Board Options Exchange's Volatility Index, a key measure of market jitters, has roughly doubled since the start of 2007. For younger investors, volatile markets can be good news by offering attractive buying opportunities when prices are low. But it can be worrisome for the oldest baby boomers, who this month turn 62 and become eligible for Social Security retirement benefits. Yesterday, the Dow Jones Industrial Average dropped 277.04 points, or 2.2% to 12501.11.

"If you're withdrawing money at the same time as your portfolio is going down, you just exacerbated a bad situation," says Christine Fahlund, senior financial planner at T. Rowe Price Group Inc.

Financial advisers have all but abandoned recommending the traditional strategy of loading up on bonds in retirement. "They'll run out of money very quickly doing that," says Bill Bengen, a financial adviser in El Cajon, Calif. T. Rowe Price advises people early in retirement to keep 40% to 60% of their portfolio in stocks.

Holding a mix of stocks and bonds can mean lower average annual returns than a portfolio consisting only of stocks. But the diversification may more than compensate for this by reducing volatility, thereby helping your nest egg last longer.

Consider an individual who retired in 1973 with a $500,000 portfolio, withdrew 5% of that nest egg in the first year of retirement and increased the withdrawals annually to keep pace with inflation. If that investor put all his money in the S&P 500-stock index, the average annual return through 1990 would be 11.3%, but he would run out of money in that year, according to Franklin Templeton Investments. If the same investor put half his money in stocks and half in bonds, he would still have nearly $100,000 left in 1992, though he received a lower 10.5% average annual return. The stock-and-bond portfolio has only about half the volatility of the all-stock portfolio, "and that's why it's more successful," says Gail Buckner, retirement specialist at Franklin Templeton.

Alternative Investments

Other recent research suggests retirees need more than just stocks, bonds and cash, and should venture into alternative investments that behave differently from traditional asset classes. Craig Israelsen, an associate professor at Brigham Young University, recently studied the effects of diversifying a portfolio that is in withdrawal mode, tracking the investments over a 37-year period ending in 2006. He added foreign stocks, bonds, cash, real-estate investment trusts and commodities to a basic portfolio of large and small U.S. stocks, measuring returns and volatility as each asset class was added. The portfolio holding all seven asset classes had the lowest volatility and the highest returns. In its worst year, it lost just 10.2%, including the annual withdrawal, far better than any of the other portfolios.

When shopping for stocks, some advisers suggest retirees focus on high-quality, dividend-paying shares, which tend to be less volatile. "Very often the company is going to continue to pay the dividend even though the value of the shares is going down, so there can be some buffer there," says T. Rowe's Ms. Fahlund. Scott Thoma, market strategist at Edward Jones, suggests retirees look at sectors like health care and consumer staples, where many companies have a long history of paying -- and increasing -- dividends.

Another key defense against volatility is a sizable cash reserve, because it can keep you from having to sell stocks if the market is down. Diane Pearson, an adviser at Legend Financial Advisors Inc., suggests soon-to-be retirees put their first year's worth of living expenses in a high-yielding money-market account and the second, third and fourth years' worth of expenses in one-, two- and three-year certificates of deposit.


Fund companies are also launching new offerings that they say can help reduce volatility. So-called covered-call writing funds sell call options on stocks they hold or on stock indexes. Recent offerings include Eaton Vance Tax-Managed Global Diversified Equity Income closed-end fund and PowerShares S&P 500 BuyWrite Portfolio exchange-traded fund.

In covered-call writing funds, premiums from the sale of options provides a steady stream of income and a buffer against stock slides. Typically, the greater the market volatility, the greater the premiums. But these funds may underperform in strong bull markets as some of their best-performing holdings are called away by the owners of the options.

The Horizon Date

Another recent offering is from Fidelity Investments, which launched 11 Income Replacement funds. These offer investors regular monthly withdrawals, gradually liquidating the investments in the funds as they approach their so-called horizon dates. The funds also gradually shift to a more conservative mix of stocks and bonds as they get closer to the horizon date.

Another tactic for retirees to make their nest eggs last is simply to spend less. Many advisers say that a 4% initial withdrawal rate, increased annually to keep pace with inflation, is safe for most retirees. But "as the market takes a tumble, you want to be extra cautious about how much you take out of your portfolio," T. Rowe's Ms. Fahlund says. Even trimming expenses by 5% "can make a big difference in getting through retirement successfully," says Mr. Bengen, the financial adviser.

Write to Eleanor Laise at eleanor.laise@wsj.com1

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RETIREMENT PLANNING MOVES FOR 2008 (FROM MARKETWATCH)

ROBERT POWELL
An end and a beginning
Eleven retirement-planning moves to make by year-end or early 2008
By Robert Powell, MarketWatch
Last update: 7:42 p.m. EST Dec. 12, 2007
BOSTON (MarketWatch) -- For procrastinators, these are the best of times, or least abundant times. There are hundreds of last-minute financial tips and barely any time to do any of them before 2007 ends.
But rather than be overwhelmed into a state of inertia, experts have offered the following list of things to do to end (or start) the year on the right foot. If you can't get to all of them, getting started on even a few will set you up for a more prosperous 2008.
1. The plan
Chuck Yanikoski of Still River Retirement Planning Software said job No. 1, especially for anyone who is 60 or older, is to schedule a review of your financial plan.
"Even if nothing else changed, the fact that someone is a year older means that their life expectancy, in terms of age at death, is greater than it was before," he said.
But other things, such as market value of assets, Social Security benefits and federal income tax brackets, have definitely changed and many other things -- such as health, expenses, debts and family situation -- have may have changed as well.
"Most retirees are not going to be dealt any new cards to play, so they have to be smart and diligent about playing the cards they still have left," Yanikoski said. "Periodically reviewing and updating one's plan is an essential, though often neglected, part of managing one's retirement."
2. Asset allocation
The end of the year is also an ideal time to review your investment plan. Indeed, gurus suggest that the biggest decision investors can make is not which investments they buy or hold, but how they allocate their assets -- what percent goes into stocks, what percent goes into bonds and what percent goes into cash.
Paul Merriman, author of "Live it Up without Outliving Your Money," said year-end is a good time to create or revisit an investment-policy statement and to invest in the right asset classes. "Sometimes a lot of inappropriate investments make their way into a portfolio," he said.
Equally important, he said is the need for investors to better understand why they are investing in those asset classes.
3. Charitable deductions
Barring an extension, Dec. 31 is the last day that IRA owners who are over 70 1/2 can give up to $100,000 to their favorite charity directly from their IRA account, without the distribution being taxed as income, said Andrew Benedict, director of research and planning for Macro Consulting Group.
"There is no tax deduction for the gift, but it's a great option for charitably inclined investors -- and if the investor has no real need for their required minimum distribution this year, they can reduce their taxable income by gifting their RMD rather than taking it themselves," he said.
4. Check those beneficiaries
Retirement plan and life insurance owners should make sure all their beneficiary designations line up with their estate planning documents, said Eva Ribarits of Creative Transitions.
5. 401(k) and Roth 401(k) plans
Plan participants have until Dec. 31 to invest the maximum possible in their 401(k) or Roth 401(k) (if available) plans. The limits are $15,500 for 2007, or $20,500 for those over age 50. Also, this is the time to schedule next year's contributions, said Bruce Steiner of Kleinberg, Kaplan, Wolff & Cohen.
6. Required minimum distributions
If you're required to take a minimum distribution from an IRA or retirement account, make sure you take it before Dec. 31, said Barry Picker, author of "Barry Picker's Guide to Retirement Distribution Planning."
According to the IRS, an IRA (other than a Roth IRA) owner must begin taking distributions for each calendar year beginning with the calendar year in which the participant attains age 70 1/2. The distribution for the 70 1/2 year must be made no later than April 1 of the following calendar year; RMDs for any other year must be made no later than Dec. 31 of the year.
7. Roth conversions
If you are semiretired and think you might want to convert some of your regular IRA funds to a Roth IRA, December is the month to do your best to figure out your 2007 taxes and see if you have any room to convert traditional IRA funds to Roth at lower tax brackets, according to Bob Clyatt, author of "Work Less, Live More."
"Savvy semiretirees check this each December in order to 'mop up' any unused 10% or 15% federal tax bracket; funds converted at these low federal tax rates are almost always advantageous over the long run. However, these conversions must be entered during calendar 2007, and many financial institutions get backed up and won't accept these conversions in the last week or two of December, so act soon. If you end up converting too much, you can always re-characterize (un-do) the conversion next year."
8. Investments
Those who invest in mutual funds in taxable accounts should check whether they are reinvesting the capital gains and dividend distributions back into the very same mutual fund. If so, Benedict suggests a different tack. Those investors would "be better served investing the distributions into a more tax-efficient mutual fund or other investment," he said.
One reason: Investors who reinvest distributions sometimes have to pay the income due on the distribution by selling the very mutual fund to raise cash. That can be even more unpleasant when the share price of the fund is below what the investor originally paid for the shares.
Many fund companies distribute their gains this time of year. "Find out who has or has not distributed for the year before you buy a fund," said Benedict. "You don't want to be paying taxes on a distribution from a fund that you just bought."
9. Don't retire yet
People should carefully consider at what age they plan to retire and should understand how the age of claiming Social Security will affect the size of their monthly check, said Andy Eschtruth of the Center for Retirement Research at Boston College. "The bottom line is that the decision of when to leave the work force has a tremendous impact on retirement security."
10. Working in retirement
Art Koff, author of "Invent Your Retirement" and founder of RetiredBrains.com, said "Anyone with an accounting background who is retired and is possibly interested in working in tax preparation during tax season should contact the local office of the major tax preparers or any independent firm that does tax preparation as they start the hiring process early in the year for these temporary jobs. Registering with temp agencies is also a good idea as some temp firms work with these offices as well."
Of note, sites that cater to retirees looking for part-time, temporary and full time jobs and project assignments, include RetiredBrains.com, RetirementJobs.com, and Seniors4Hire.org. Koff recommends that those interested in working other than full-time must state that on their resume.
11. Planning for a new kind of future
Many experts suggest that retirement has or will be retired. "The best retirement tip is to understand that retirement is a dead end," said Dan Taylor, author of "The Parent Care Solution."
"Making sure you have money is only one piece. You have to have community, compensation and conviction in retirement to make it meaningful. Work on a plan to reinvent yourself, use some of your money, make some money and continue with learning, growth and progress."
Others agree. "Plan to take a class that might go toward a degree or certificate or a new professional you," said Joe Coughlin, director of the MIT AgeLab.
"Ask in the new year: If I retired today who would I want to be? What plans did I forget along the way? The class or program may retrain or renew. Either way, science tells us that at the very least it will recharge your aging brain and probably your attitude about the future too."
Robert Powell has been a journalist covering personal finance issues for more than 20 years, writing and editing for publications such as The Wall Street Journal, the Financial Times, and Mutual Fund Market News.

RECESSION? (from Motley Fool).

Are We Headed for a Recession? Who Cares?

http://www.fool.com/investing/general/2008/01/11/are-we-headed-for-a-recession-who-cares.aspx
Rich GreifnerJanuary 11, 2008

Is the United States headed for a recession? Yale professor Robert Shiller certainly thinks so. In a recent interview, Shiller told The Times that the American real estate sector has "trillions of dollars' worth of losses" yet to come, and it could plunge the U.S. into a "Japan-style slump."
But don't tell that to U.S. Treasury Secretary Henry Paulson, who said that "the economy and the markets are strong enough to absorb" rising credit losses. He remains confident that the country will not slide into recession.
Then there's financial newsletter tracker Mark Hulbert, who concluded that "the odds had increased that we were already in a recession" -- and he wrote that in September!
The three wise menWhen three experts offer three different opinions, it's difficult to know whom to trust. So here's my advice: Ignore them all.
Seriously, ignore them allSuppose Shiller's correct, and the U.S. is headed for a recession. Or maybe Hulbert has it right, and we've been in a recession for months. Does it ultimately matter? Should you alter your stock selection process? Should you sell off your stock holdings in favor of government bonds?
Just what the heck is a recession, and what does it mean for stocks? The answers may surprise you.
What goes up must come downA recession is the period between a peak of economic activity and a trough. Recessions typically last between six and 18 months, and they're a perfectly natural part of the business cycle. A recession does not mean that economic growth has stopped; it merely means that it has slowed down.
To determine whether the economy is in recession, the National Bureau of Economic Research (NBER) analyzes changes in factors such as gross domestic product, personal income, employment, industrial production, and retail sales volume. There is no fixed rule for how the different indicators are weighed.
But there is a significant delayIt takes time for the NBER to collect and analyze this economic data. By the time it's determined that the country is in a recession, odds are that the economy is already close to recovering. For example, the last trough in economic activity occurred in November 2001 -- but the NBER didn't make that determination until July 2003. By that time, the economy had been improving for over a year and a half!
Wait, stocks can go up in a recession?Since 1945, there have been 11 recessions lasting an average of 10 months each. But according to a recent article from Hulbert, during these recessions, the stock market actually rose seven times -- and the average market return during all 11 recessions was 3%!
Those who ignore the past ...During the 2001 recession, the S&P 500 fell about 12%. However, this was largely due to the abysmal performance of a few technology companies:
Closing Price on March 1, 2001
Closing Price on Nov. 1, 2001
Change
Nortel Networks (NYSE: NT)
$184.45
$58.50
(68.3%)
Qwest Communications (NYSE: Q)
$34.86
$12.00
(65.6%)
Lucent Technologies (now Alcatel-Lucent (NYSE: ALU))
$37.62
$14.85
(60.5%)
Meanwhile, quality companies with strong balance sheets, solid free cash flow, and shareholder-friendly management actually prospered during this period:
Closing Price on March 1, 2001
Closing Price on Nov. 1, 2001
Change
AutoZone (NYSE: AZO)
$26.00
$59.15
127.5%
Office Depot (NYSE: ODP)
$9.25
$14.35
55.1%
Progressive (NYSE: PGR)
$7.48
$10.73
43.4%
Heads you win, tails you still winHere's how to silence the noise: Concentrate on finding the types of stocks that will perform well in any economic environment. ..................
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