Paul Ferraresi

A woman retiree in the U.S. is far more likely than a man to face economic hardship, or even poverty, says a new study written by Cindy Hounsell, president of the Women’s Institute for Secure Retirement (WISER) in Washington, D.C.

The study, The Female Factor 2008: Why Women are at Greater Financial Risk in Retirement, posits that women face unique challenges that could jeopardize the economic security of their retirement years. Among them is that women on average spend fewer years in the work force than men, and earn 77 cents for every $1 earned by men – the median salary for women working full time in 2006 was $32,515 versus $42,261 for men. African-American women earned a median salary of $27,535 and Hispanic women earned just $22,285.

Only 22% of women over 65 received income from an employer sponsored retirement plan in 2004 (the year used in the study), compared with 29% of men who received such payments. The median annual benefit for these women is $800 a month, compared with $1,177 for men.

Woman typically live five years longer than men, so they have to make their retirement money last longer. The long-term trend isn’t particularly encouraging. The study says that a 25-year-old college-educated woman today can expect to make $523,000 less than a 25-year-old college-educated man over a lifetime.

(From Financial Advisor Magazine, June 2008)

Where have you come from this past year? What have you accomplished? Don’t like the answers? Wish you had better ones, more fulfilling ones? You can – just one year from now!

You have within yourself the power to decide that when someone asks you just one year from now, “What did you accomplish in the last year?” you will respond, “Let me tell you – I was on fire!”

You aren’t getting any younger, and neither am I. If nothing changes, next year you will be one year older and still stuck in the rut wondering when you will achieve your dreams. But you can change!

Here are some thoughts to apply so that you can take control of your world and ignite your life!

Decide what you want this year. What is it – exactly? You will never pursue it, nor get it, if you do not know what “it” is. Crystallize it in your mind. See it. Know it.

Put some sort of physical reminder where you will see it every day. Maybe you want to lose weight. Put a picture of someone who looks the way you want to, or perhaps a picture of yourself from when you weighed what you want to weigh again. This will keep it in your mind each and every day.

Increase your positive self-talk. Stop telling yourself negative things, and I include thoughts, not just verbal talk. Instead, start telling yourself positive things. “But Paul, those thoughts just run around in my head. I don’t put them there!” Well, catch them. Take them captive and throw them out! When you catch yourself thinking negative thoughts, stop and ask yourself what the exact opposite would be. Then begin to think it. Let the positive thought expand and take over the terrain of your mind the same way the negative thought would have before you ran it out of town!

Act. Yes, act. I don’t mean join a theater group. I mean, get some action going in your life. Want to get out of debt? Ask the boss for 5 hours of overtime a week. Over a year that would be 250 hours (I give you two weeks for vacation. Aren’t I nice?). If you normally make $15 an hour, you will make $30 (or something like that – go with me here). $30 multiplied by 250 is $7500. Your action will move you toward your goal. Worrying about money won’t. If you want to lose weight, go to the gym on a set schedule. Whatever you do – act! Just make the action something that will propel you toward your goal.

If you do the above – if you decide what you want, put a physical reminder of it where you will see it, increase your positive self-talk and take actions that will propel you toward your goals, you will ignite your life! And next year when someone asks how you have been your eyes will light up and you will boldly say, “Man, I have been on fire! Let me tell you about it…”

This is an election year and it would appear that one party appears to possess more energy, the Democrats. Many of them are talking about raising taxes at a time when the global economy is becoming increasingly competitive and many of our leading trading partners are slashing tax rates. Consequently, some observers are saying if a tax-hiking president were to win the White House, it would discolor their long-term outlook for U.S. equities.

This is a much more important election – or perhaps it’s important in very different ways – than many people think. It’s also much simpler that it appears, although maybe these issues will sharpen as the election gets closer. There are really only two issues that I see.

Much or most of the sustainable growth in employment and output in the decade had been attributable to the 2001 and 2003 tax cuts; one candidate will be in favor of maintaining them, and one will favor letting them expire, which will equate to a massive (and disastrous) tax increase. The latter candidate will probably also favor dealing with the looming insolvency of Social Security through increases in payroll taxes, and be more inclined to retreat into protectionism, both of which would be very deleterious to the American economy.

The other issue will be the war on Islamofascism in general, and U.S. policy in Iraq in particular. One candidate will favor continuing the fight to stabilize Iraq, and thus to thwart Iran. The other will propose an announced schedule of rapid withdrawal, effectively ceding the region to Iran, and to chaos. So the choices are going to be very clear, because the candidates – even as they move toward the center in the general election campaign – are going to be philosophically very far apart.

The economy and the markets may be the wild card in this race, because the third and fourth quarter of 2008 are likely to show very powerful resurgence in output and especially in corporate earnings. Of course, perception will be the key: Bush 41 ran for re-election on the message that the recession was over and strong growth was back. This was true, but nobody believed him. In any event, I’ll stay invested.

High Net Worth (HNW) individuals can not and do not use the typical college savings plans. Many plans have phase outs or limitations. None the less you should be aware of other strategies that the wealthy use and incorporate them yourself.

The classic plans used by everyone:

Here are what HNW people use:

(1) Direct payments by benefactors.
Grandparents and others are often in a position to pay tuition directly, allowing these benefactors to reduce their estate and gift taxes by taking full advantage of the unlimited gift tax exclusion for tuition (and medical) payments. This benefit makes funding 529 plans of limited use (other than paying room and board, which do not qualify for the gift tax annual exclusion) in wealthier families. A practical approach for implementing this plan is for the grandparents (or others) to establish a separate checking account for gifts. The benefactor would then delegate the task of dispensing all annual gifts, tuition and medical payments to a family member or advisor. This person would be responsible for documenting the benefactor’s qualification for the annual gift tax exclusion.

(2) Family limited partnerships (FLPs) and limited liability companies (LLCs).
Most HNW clients are concerned about asset protection, estate taxes and control. Instead of merely funding 529 plans, consider a plan which includes establishing a FLP or LLC to hold family assets. Establish trusts for children, grandchildren and other heirs. Then, have the client make gifts of FLP or LLC interests to the trusts for their heirs, rather than to 529 plans. The children’s trusts can then invest in and remain partners in the family entity, thus helping to achieve broader family goals.

(3) Direct payments to schools.
A wealthy grandparent may prepay tuition directly to schools on behalf of any number of grandchildren enrolled in those schools and the payments, no matter how large in the aggregate, should be exempt from gift and the generation – skipping tax (GST). This approach could enable a wealthy client to save substantial estate taxes and still preserve annual gifts for other planning uses. A 529 plan would limit use of the annual exclusion for tuition, thus limiting overall family tax benefits. Unlike the front- loading of a 529 plan, this is not limited to five years’ worth of gifts, and there is no recapture of tax benefit if the donor dies less than five years after the gift. That is a huge benefit. Further, tuition prepayment doesn’t use up any of the donor’s annual gift exclusion, so the client can still pursue the FLP or LLC plan.

(4) Grantor trusts
A biggie with 529 plans is that the funds grow tax-free. Trusts cannot provide that benefit- well, that’s what some think! As any financial planner knows one can structure investments to minimize current income tax to get close to this result. But there is also a tax technique that can, vis-à-vis the child, make the trust holding college savings “tax-free”: The trust can be structured as a grantor trust so that the donor, not the trust, pays all income taxes. This is done by having the donor expressly reserve certain administrative powers in the trust agreement. The bottom line: Grandma pays all income tax on the trust (well, whatever is left after you’ve invested it in a tax-efficient manner) and the trust grows without diminution from taxes. From a family planning perspective this is equivalent to an additional tax-free gift, above the annual exclusion amount, from Grandma to each grandchild’s trust.

The U.S. stock markets have been in a tail spin and have been classified as a “bear” market ( A bear market is defined as a period when stock index prices drop at least 20%).

Since World War II there have been 13 bear markets. One occurring about every 5 years with an average duration of 2 years. In every one of these occasions the media tried to convince the public that the sky was falling and the world was ending. As always it was not true. In each case buyers of stocks profited handsomely on the next wave upward.
Should you sell and “panic out” of the markets??? NO! Here is my approach.

For instance, I don’t believe I can time the equity market, in the sense of being able to go in and out opportunely. So I never have to spend any time trying to anticipate the markets, nor change my portfolio in anticipation of market movements. Buy-and-hold, for all its tribulations, is therefore a bedrock principle to me. Equity diversification – I can’t make a killing, but I can’t get killed, either – is another such principle. So I don’t have to spend any time or energy trying to figure out whether to overweight growth or income, small-cap or big-cap, Poland or Peru. Minutia has no attractions for me; principles do.

Every empirical study shows that the long term investor always wins.