Getting Ready to Retire? Do These 5 Things Now

Retiring in 2012? Read this today

BY Tom Lauricella,
The Wall Street Journal

Copyright © 2012 Dow Jones & Company, Inc. All Rights Reserved.
The Wall Street Journal — 01/01/12

For some, 2012 will be much more than just another year. It will be the year that, after decades of punching the clock, they'll join the ranks of the retired.

Before making that final commute to work, however, those retiring this year should make a to-do list.

There are important aspects of retirement to prepare for and steps that can make the transition smoother both financially and emotionally. Here are five things to do now.

1. Start keeping close track of your spending
During the planning phase for retirement finances, much of the math was based on guesswork. Now is the time to get real.

Start by going back over the past few months of bills and expenses to get a detailed picture of your spending and expenses. Plan on keeping close tabs on a continuing basis, remembering that some spending may be seasonal — such as holiday presents or greens fees for golf.

Budgeting tools, such as Mint.com, will enable you to highlight certain spending that won't continue after retirement, such as commuting costs.

Keep in mind this will be a work in progress even once you stop working. For many people "it's going to take a year or so before you really get the hang of it, knowing what you are spending your time doing, how you are spending your money," says Jonathan Guyton of Cornerstone Wealth Advisors in Minneapolis.

2. Fine-tune your income expectations
Recent years haven't been kind to savers. A lousy decade for stocks has been compounded by interest rates that are at historically low levels and seem likely to remain low for years.

Unfortunately, 401(k) calculators typically don't rely on current yields when projecting your income during retirement. Instead, they usually rely on historical patterns.

That means some people nearing retirement may be in denial about how much money they can earn from safe investments such as bonds or certificates of deposit, says Lawrence Glazer, a managing partner at Mayflower Advisors in Boston. "You have to be realistic about today's income environment," he says.

3. Start thinking about Social Security
Central to your income planning will be Social Security benefits. You won't know the exact size of the check until the first one arrives, but the Social Security Administration can provide an estimate that should be relatively close. You can get an estimate at SocialSecurity.gov, on the phone or in person at your local office. Be sure to check if you're due additional benefits if you are widowed or divorced.

All this leads to one of the most important decisions regarding retirement planning: when to start taking Social Security benefits. Delaying benefits means larger checks in the future, but it may require eating into your savings upfront. Sit down with an adviser to do the math.

4. Build a cash reserve
One thing you want to avoid in retirement: being forced to sell during a steep selloff in the stock or bond markets in order to raise cash to pay bills.

The solution is to keep enough cash on hand that you can sell investments when you are comfortable. Many advisers recommend at least a year's worth of money.

Advisers have long recommended that retirees hold two years of money in a separate account. A retiree then cuts himself a "paycheck" once a month which goes into a checking account for day-to-day living. "In a perfect world, an investor would begin developing the reserve prior to retirement," says Harold Evensky, president of Evensky & Katz.

A dedicated cash reserve is especially important if you are delaying taking Social Security. "The idea is that this is a bridge account that will deplete itself by the time Social Security kicks in," says Mr. Guyton.

5. Get emotionally ready
Amid the focus on financial planning, don't lose sight of the fact that for most people, retirement is a completely new and different experience that can be challenging on an emotional level.

While many people can't wait to get out of the 9-to-5 grind, there are those for whom a career was more than a job. It was an identity.

"You've got the executive who has worked 24-7…and has always identified his self worth with that paycheck," says Mayflower's Mr. Glazer. "Without that paycheck, he feels a little empty."

Cornerstone's Mr. Guyton urges those approaching retirement to think in terms of "retiring to something" and not "retiring from something."

"If your definition of retirement is framed in terms of what you are leaving, you are setting yourself up for a much more difficult transition emotionally," he says. "Even if it's just some relatively small thing that you are energized about and this is something you get to do right now…you generally do much better."


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Copyright © 2012 Dow Jones & Company, Inc. All Rights Reserved.

Finding the Best Travel Deals (Sunday NY Times)

19 Web Sites for Travel Savings in 2012

By MICHELLE HIGGINS
New York Times
January 4, 2012


HIGHER hotel prices, airline capacity cuts and rising travel demand mean travelers will have to work harder to find a good deal in 2012. But there are plenty of online tools to help keep your vacation expenses in check. Here are 19 go-to Web sites to help you save money this year.

FLIGHTS

Looking for sales on a specific route, or just want to go somewhere cheap? AirfareWatchdog.com hunts down deals computers tend to miss, like promo codes airlines include in e-mail newsletters. It also finds sales from Allegiant and Southwest, which typically aren’t listed on major airfare search engines. You can sign up for specific fare alerts or a list of all the cheap round-trip fares from your local airport.

Where can you go for $500 or less? Kayak.com/explore will show you where you can vacation for a particular price and display the results on a map. You can narrow your search by month, region, flight length, weather or activity. Clicking on a price reveals dates the fare is available.

If you already know where you want to go, use Itasoftware.com to find the cheapest dates to fly. Click on “airfare search” in the middle of the home page, then enter your departure date and destination and select “see calendar of lowest fares.” To purchase, you must go to the airline’s Web site or online agencies like Travelocity.

To figure out whether to buy that plane ticket now or wait, go to Bing.com/travel. Its Price Predictor can determine how likely a fare is to rise or fall during the next seven days from more than 250 cities in the United States to top domestic destinations and major hubs in Europe. The site claims that its predictions are about 75 percent accurate and save customers more than $50 on average for a round trip.

After you’ve booked your tickets at an airline site, enter your flight information at Yapta.com to track the price so you don’t miss out on savings if the price drops. If the difference in price exceeds the rebooking fee (typically $75 to $150), Yapta will send you, without charge, an e-mail or tweet so you can call the airline to claim the credit.

HOTELS

To get the best deal on Priceline.com, where travelers name their own price and pay before learning the hotel’s name, sites like Biddingfortravel.com and Betterbidding.com have long offered strategic advice on how to game the system. Now, a new site, Biddingtraveler.com, goes a step further. Enter the city, dates, neighborhood and star ratings for the hotel you want. Then, after reviewing the site’s recommendations, enter a “lowball” bid and “final offer.” The Bidding Traveler then calculates and helps you execute the optimal bidding strategy on Priceline.

Not willing to gamble? Hotels.com offers nearly 145,000 properties in more than 60 countries from national chain hotels and all-inclusive resorts to bed-and-breakfasts. You can find particularly good last-minute deals on Tuesdays and Thursdays. And the site has a loyalty program through which members earn a free-night voucher after they book 10 nights.

For hotel fanciers, Luxurylink.com, offers discounts on high-end hotels and villas through online auctions and deals. Just last month the site was auctioning off a five-night package at La Samanna on St. Martin in the Caribbean that included a deluxe ocean-view room with a private terrace, airport transfers, a bottle of rum upon arrival, two 45-minute massages and a one-day car rental with a minimum starting bid of $2,475. The package normally costs $6,171.

VACATION RENTALS

As hotel prices rise, vacation rentals can be the better deal. HomeAway.com offers more than 290,000 listings in 145 countries, including rentals by owners that cut out the middleman.

Airbnb.com connects travelers with locals who are offering a place to stay, whether it is a couch, a private apartment or a castle. It currently has about 100,000 listings in 19,000 cities and towns in 192 countries, and charges booking fees from 6 to 12 percent. Wimdu.com offers a similar service focused mostly on places in Europe with 35,000 listings across 100 countries. Do as much due diligence as you can when using such sites; some hosts have been known to cancel confirmed reservations at the last minute.

For luxury seekers, Jetsetter.com/homes, a members-only site, offers discounts of up to 50 percent on 5 to 10 carefully selected vacation rentals. Membership is free and by invitation only. You can also request a free membership on Jetsetter.com.

EVERYTHING ELSE

Tired of sifting through daily-deal or group-shopping sites like Groupon and LivingSocial for local bargains? YipIt.com, collects those deals from 787 services in 118 North American cities. Travelers who sign up with an e-mail can filter results by checking categories like wine tasting, museum, golf or other activities. A recent search for restaurant and spa deals in New York turned up a $60 three-course dinner for two with wine (worth $136) at Tenpenny, the Gotham Hotel’s restaurant, and a $199 Moroccan Spa treatment at the Trump SoHo, worth $339. Pay close attention to expiration dates to be sure the deals will be good for your travel plans.

Autoslash.com searches the Web for discount coupons on car rentals and applies them after you book. It then continually checks for lower rates and coupons until your trip date and automatically applies any discounts it finds.

Cayole.com lets you search cruises by price, destination, room type or cruise line, then offers price predictions to give cruisers an idea of whether they should buy now or wait for a possible price drop. For example, by clicking “get more details” for a five-night Western Mediterranean cruise in September, the site recommended that travelers booking balcony cabins buy “as soon as possible, because prices are likely to increase.” For interior ocean-view rooms or suites it suggested waiting.

If you’re willing to swap places with a stranger, list your home and find travelers willing to trade on Homeexchange.com, which facilitates about 60,000 swaps a year. Recent listings included a two-bedroom apartment on Lake Como in Italy and a six-bedroom oceanfront lodge in Cape Town with a resident game ranger. Members pay $119.40 to list their home for a year or $47.85 for three months.

When to Stop Giving Money to Grown Kids (WSJ)

RETIREMENT PLANNING WALL STREET JOURNAL JANUARY 8, 2012.

Don't Let Your Grown Kids Ruin Your Future

By RUTHIE ACKERMAN

It's the Boomer Boomerang.

Baby boomers, who were notorious for prolonging their own adolescences well into their 20s and beyond ("Seinfeld," anyone?), are feeling the financial sting now that their own offspring have their hands out.

The problem has only grown since the financial crisis, the official recession and the economic doldrums that have swamped the country.

The crux of the matter: The kids are out of work, out of money and maxed out.

But so are Mom and Dad, who have seen their own retirement nest eggs cracked, their retirement incomes shrunk and even the value of their nests—the family home—fall.

And despite those woes, financial advisers are seeing a trend in boomer parents supporting their children, even when it means they are taking away from their own retirement security.

Will Ellis, a financial adviser in La Grange, Ga., tells the story of a 60-something couple driven to the brink of insolvency by their 30-year-old daughter's profligacy.

A real-estate agent during the housing boom, she racked up $850,000 in debt (including on her house, her car and her second home) before the recession hit and her income was slashed by over 80%.

Lucky for her, Mom and Dad were willing to help out—so much that Mr. Ellis figured they would themselves have gone broke in little more than a decade.

"How much are you willing to sacrifice?" Mr. Ellis recalls asking the retired couple. "Are you willing to give up your own needs?"

Mr. Ellis's clients made the tough, and right, call. They cut off their daughter.

But it's not at all certain that most parents would make similar decisions. A survey released last year by TD Ameritrade found that 57% of boomers said they would be willing to support their adult children even if that means it would take away from their own retirement.

Yet even boomers who aren't financially coddling their children are having a hard time making ends meet in retirement. Fifty-five percent of boomers now plan to retire later than they originally expected, according to the survey. And retirees say their biggest regret is not having saved more money for their golden years, according to a study by Hartford Financial Services, a provider of insurance and wealth-management services.

Financial advisers insist that parents shouldn't jeopardize their own futures for the benefit of their grown children.

Here are some steps to take to avoid facing that problem:

■ Don't write a blank check. Even if you are willing to help your children out financially, don't make it a free-for-all. Make sure you can pay your bills before promising to cover your kids' expenses.

■ Set limits. Tell children what you feel comfortable providing for them and when you will no longer be able to do it. Be clear about what choices you are willing to make down the road in retirement to be able to give to them. Are you willing to work longer? Take fewer vacations?

■ Be the grown-up. Too often parents feel guilty saying no to their child—no matter how old they are. You can be honest with them and explain that you're putting your own retirement savings at risk.

■ Reassess your goals.If you have been financially supporting your adult children, develop a new plan to get back on track. Figure out what you will need to live on in retirement and stick to it.

■ Insist they grow up. It's OK to make children accountable for themselves. If they aren't held accountable they will repeat the same mistakes over again.
And if your kids aren't grown yet, here are a couple of things you can try to avoid problems later:

■ Start young. Educate children about money early, instilling the values of saving and budgeting. The earlier children are involved in making decisions about money the better.

■ Don't bankroll everything. The key is to not pick up every tab in their lives or pay every bill. See that they get part-time jobs. It will leave them better suited to go into the work force when they finally do get out on their own.

Copyright 2011 Dow Jones & Company, Inc. All Rights Reserved

10 Ways to Invest Tax Free (Forbes)

10 Ways to Invest Tax Free (Forbes)

William Baldwin, Forbes Staff

Taxes|2/10/2011

For the moment, taxes on portfolios are modest. The federal rate is 15% on most dividends and on long-term capital gains. Come 2013, though, the rates shoot up.

Without a law change, the maximum federal tax on interest, dividends and short-term gains will go to 44.6%. That consists of a 39.6% stated rate, the 1.2% cost of a deduction clawback and a 3.8% surtax to pay for health care. The max for long gains will be 25% (but 23% for assets held for more than five years). Add state taxes to all of these.

What’s an investor to do? Take defensive measures. Here are ten ways to pocket investment income without paying tax on it.


Set up a kiddie Roth


Did your daughter earn $4,000 last summer that she needs for college? Were you going to leave her at least $4,000 in your will? Start your bequest now. Hand her $4,000 that she can use to fund a Roth IRA. Tell her not to touch it until she is 60.

She’ll get 40 years of tax-free compounding. (At 7% a year, this would turn $4,000 into $60,000.) You’ll get money out of your estate, probably saving on state inheritance taxes.

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Buy an MLP

Master limited partnerships that own energy assets like pipelines tend to pay pretty good dividends (in the neighborhood of 5%). Those dividends, at least initially, are largely sheltered by depreciation deductions. The quarterly cash, that is, is considered a nontaxable “return of capital.”

After a decade or two this tax shelter is exhausted, but if you die owning these shares your heirs get to start the process over with a new, higher tax basis.

Go Ugma

Use the Uniform Gift to Minors Act (a.k.a. Uniform Transfers to Minors Act) to set up a brokerage account for your son or daughter. The first $950 of annual income is free of tax; the next $950 is taxed in the kid’s low bracket.

The downside is that at age 18 Junior takes ownership and might not spend the money on college, as you intend. So fund the account modestly­—$30,000 is plenty—and concentrate the holdings on investments that (a) generate a lot of taxable income and (b) are compelling additions to the overall family portfolio. The idea is to make full use of that $1,900-a-year shelter while parting with a small amount of capital.

Here are several examples of investments that make sense in a diversified portfolio and that spew out a lot of ordinary income:

–exchange traded funds that hold a lot of Ginnie Maes and the like (MBB) or the whole bond market (BND).

–the ETF for junk bonds (JNK).

–high-yielding blue chips like Verizon, AT&T and Pfizer.

–preferred stocks.

Two cautions. (1) To avoid gift tax wrinkles, limit each year’s contribution to $26,000 per child ($13,000 if you are single). (2) Don’t set up Ugmas if you think your kid will qualify for college financial aid. Any assets in the kid’s name will be snatched by aid officers.

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Open a 529

A Section 529 plan lets you accumulate investment income tax free, provided the proceeds are used on schooling. Drawback: Sometimes stiff fees erase the income tax saving.

The account is likely to be a good idea where the costs are low (as in Utah) or there’s a break on state income tax for parents chipping money in (as in New York).

As with Ugmas, 529s are not a good idea for families likely to get tuition assistance.

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Own commercial real estate

As long as your building doesn’t have too much of a mortgage, depreciation deductions will make a good chunk of your rental income free of current income tax. There’s more on the economics of these deals here.

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Own muni bonds

Interest on the general obligations of state and local governments is free of federal income tax. In most states you also get a pass on state income tax for home-state bonds. Caution: Some states are in financial trouble. Check out the Forbes Moocher Ratio before buying.

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Give away stock profits

You put $3,000 into Netflix, wait at least a year, then give away the shares to charity when they’re worth $8,000. You get a deduction for the whole $8,000. Your $5,000 gain is never taxed.

Two other ways to shelter appreciated property from capital gain taxation: leave it in your estate, or give it to a low-bracket relative.

Bequeathed property benefits from a step-up, meaning that gains unrealized by an owner at the time of his death permanently escape income taxation.

Low bracket taxpayers (people who would be in a 25% or lower bracket if all their capital gain were taxed as ordinary income) get a free ride on long-term capital gains. But if the donee is a son or daughter 18 or younger (23 if in school), beware the kiddie tax, which applies to investment income over $1,900 a year.

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Capture losses

When the market is down, swap out of losing positions into similar but not identical ones. For example, you could exit an S&P 500 index fund and immediately buy the Vanguard Megacap Index Fund. In this fashion, you can run up a capital loss carryforward that will make future capital gains tax free. For more on loss harvesting, go here.

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Buy a safe


If your $400 investment saves you $45 a year in safe deposit box fees, you’ve got an 11% yield, tax free. The only exception on the tax side would be if you are one of those rare birds in a position to deduct miscellaneous items like the rental on a strongbox to hold your gold coins. Miscellaneous deductions are usable only to the extent they exceed 2% of your adjusted gross income; not many taxpayers get anywhere near this threshold.

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Be a cheapskate investor

Are you paying someone 1.5% a year to have your assets managed? Cut this cost in half by haggling. A dollar saved in this fashion is a dollar earned free of tax, unless you are claiming miscellaneous deductions, which is unlikely.


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This article is available online at:
http://www.forbes.com/sites/baldwin/2011/02/10/ten-ways-to-invest-tax-free/
America's Most Promising Companies

Investing in Convertible Stock for Income (Barrons)

Feature | SATURDAY, DECEMBER 31, 2011


Stocks with Training Wheels
By ANDREW BARY

Funds are the best way for individuals to play convertible securities. But some big and liquid issues are worth a look. Think MetLife and Wells Fargo, which sport yields of 7% or more.

Convertible securities finished an uncharacteristically bad year in 2011 with returns that trailed the Standard & Poor's 500 index. That could set up converts for a strong 2012 because major issuers like General Motors and Citigroup that contributed to the disappointing showing in 2011 now carry low valuations relative to earnings and could rally this year.

"Converts are a great way for investors to play a rebound in some out-of-favor companies and collect some income along the way. They offer a highly attractive alternative to the common stock," says David Hulme, a managing director at Advent Capital Management, which runs two convertible closed-end funds, including the Advent Claymore Convertible Securities Fund (ticker: AVK).

Convertible bonds can be swapped for the issuer's common stock, giving investors upside participation. They now offer only half the appreciation potential of the common, but provide better downside protection if the common declines. The average convert pays 3.5%.


Warren Buffett, for one, is a fan of the market; Berkshire Hathaway owns a large convert from Dow Chemical.

Toward the end of last week, the $200 billion U.S. convert market was down 5% in 2011, based on the BofA/Merrill Lynch index, versus a 2% total return for the S&P 500. Prior to 2011, converts typically bested the S&P 500 in good markets and bad. While converts didn't have great absolute performance in 2011, they did their job in protecting investors because the stocks underpinning convert issues dropped about 12%, Hulme notes.

Converts come in several varieties and their complexity can be daunting with such features as shifting exchange ratios. The complexity factor has been a turn-off for retail investors, who've never embraced the market and typically have invested via funds rather than directly. The largest investors are hedge funds that buy converts and sell short the underlying stocks.

As the nearby table shows, there are four main ways to play the sector: open-end funds, closed-end funds, exchange-traded funds as well as individual issues, many of which trade on the New York Stock Exchange.

There are more than a dozen open-end funds run by the likes of Fidelity, Vanguard, Columbia, Franklin, Calamos, PIMCO and Mainstay. They generally yield around 4%.

Closed-end funds typically yield more, thanks to several factors, including leverage, which increases share-price volatility. Some funds, like the Calamos Convertible and High Income Fund (CHY), try to maintain high and steady dividends, even if it means returning some of investors' own capital. There's one sizable exchange-traded fund, the SPDR Barclays Capital Convertible Fund (CWB). It trades around $36 and yields 4.6%.

Citigroup (C), GM (GM), Wells Fargo (WFC), Bank of America (BAC) and MetLife (MET) have Big Board-traded convertible preferred shares. The Citi, MetLife and GM issues are mandatory converts, which are complex securities that will be automatically exchange for common stock, with the Citi issue due for conversion in late 2012.

Hulme likes the Citi issue, now trading around $82, because it has a high yield of 9%, versus just 0.2% on the common, and trades at a discount to its equity value. The GM preferred, with nearly two years to maturity, now trades around $35, a premium to its equity value of around $30. This is derived by multiplying GM's stock price of $20 by the conversion factor of 1.51. It yields 7% and good upside participation if the stock rallies. If GM common gets back to its 2010 IPO price of $33, the convert should rally to $50, a 43% gain.

The Bank of America and Wells Fargo preferred are known as "busted" converts because their conversion features are way out of the money. They amount to yield plays. The Bank of America 7.25% convert trades at $770, a deep discount to its face value of $1,000, and yields 9.3%. One believer in the safety of the preferred dividend is Buffett because Berkshire bought $5 billion of Bank of America 6% preferred in August.

The Wells Fargo 7.5% issue trades at $1,060, a premium to its face value of $1,000, and yields about 7%, a fat yield considering the bank's financial strength.


Convertible Opportunities

OPEN-END FUNDS Size (mil) Return YTD Yield
Fidelity Convertible/FCVSX $1,980 -7.5% 3.5%
Columbia Convertible /NCIAX 510 -4.9 3.3
PIMCO Convertible /PFCIX 1,600 -2.8 5.4
Vanguard Convertible/VCVSX 1,680 6.8 4.4
YTD Discount
CLOSED-END FUNDS Price Return Yield Discount to NAV
Calamos Convert & Hi/CHY $11.8 9 0.5% 8.9% -4%
Advent/Claymore Convert/AVK 15.13 -9.4 7.6 -9
Putnam High Income/PCF 7.71 -1.9 6.8 -1
INDIVIDUAL CONVERTS Price Yield Convert Type
Citigroup 7.5% Preferred/C Pr H $82 9.3% Mandatory
GM 4 3/4% Preferred/GM Pr B 34 6.9 Mandatory
Bank of America 7.25%/BAC Pr L 768* 9.2 Regular
Wells Fargo 7.5%/WFC Pr L 1,050* 7.1 Regular
ETF Price Return YTD Yield
SPDR Barclays Convertible/CWB $36 -7.9% 4.6%

*$1,000 face value Source: Bloomberg; CEF Connect
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.E-mail: editors@barrons.com

6 Reasons to file a tax return (even if you don't have to)

Do I Need to File a Tax Return This Year? (from irs.gov)


You are required to file a federal income tax return if your income is above a certain level, which varies depending on your filing status, age and the type of income you receive. However, the Internal Revenue Service reminds taxpayers that some people should file even if they aren't required to because they may get a refund if they had taxes withheld or they may qualify for refundable credits.

To find out if you need to file, check the Individuals section of the IRS website at www.irs.gov or consult the instructions for Form 1040, 1040A or 1040EZ for specific details that may help you determine if you need to file a tax return with the IRS this year. You can also use the Interactive Tax Assistant available on the IRS website. The ITA tool is a tax law resource that takes you through a series of questions and provides you with responses to tax law questions.

Even if you don’t have to file for 2011, here are six reasons why you may want to:

1. Federal Income Tax Withheld You should file to get money back if your employer withheld federal income tax from your pay, you made estimated tax payments, or had a prior year overpayment applied to this year’s tax.

2. Earned Income Tax Credit You may qualify for EITC if you worked, but did not earn a lot of money. EITC is a refundable tax credit; which means you could qualify for a tax refund. To get the credit you must file a return and claim it.

3. Additional Child Tax Credit This refundable credit may be available if you have at least one qualifying child and you did not get the full amount of the Child Tax Credit.

4. American Opportunity Credit Students in their first four years of postsecondary education may qualify for as much as $2,500 through this credit. Forty percent of the credit is refundable so even those who owe no tax can get up to $1,000 of the credit as cash back for each eligible student.

5. Adoption Credit You may be able to claim a refundable tax credit for qualified expenses you paid to adopt an eligible child.

6. Health Coverage Tax Credit Certain individuals who are receiving Trade Adjustment Assistance, Reemployment Trade Adjustment Assistance, Alternative Trade Adjustment Assistance or pension benefit payments from the Pension Benefit Guaranty Corporation, may be eligible for a 2011 Health Coverage Tax Credit.
Eligible individuals can claim a significant portion of their payments made for qualified health insurance premiums.

For more information about filing requirements and your eligibility to receive tax credits, visit www.irs.gov.