Paul Ferraresi

Over the past 10 years, we have experienced two major bubbles and subsequent crashes. The easy monetary policies of the late 1990s led to the “tech wreck” bubble and crash. Subsequent to that many people ran from the stock market, and with even easier money conditions in place by The Fed, put all their money into the real estate market. The 2006 to present housing crisis is the outcome.

Well, with wounds on both of their knees people ran away from stocks and real estate into “safe” U.S. Treasuries. Because so many people wanted safety, these securities have been bid up. They are overvalued. Their prices make no sense relative to fundamentals.

Let’s look backward – in 1999, did the price of Pets.com make sense relative to the fundamentals? In 2003, did the price of a house in San Francisco make sense relative to fundamentals? No, in any case.

The price of Treasuries has no place to go but down based on the economic environment, the threat of future inflation and the probability of rising interest rates.

You know the sad thing is those same people who bought tech stocks in 1999, houses in 2003 and oil in 2007 are the one buying Treasuries now. They are like a fighter with a “glass jaw” getting ready to be hit by a “heavyweight champion.” Get out of Treasuries before it crashes!!

I am constantly asked… how much do I need for retirement? There are rules of thumb all the way up to sophisticated models that we use to find the correct amount.

Obviously, there are some basic information that one must understand. When one retires, they are usually at their lifetime’s highest income. Most recent studies (and a rule I have always used that is successful) show that you will need about 90% of your preretirement income during retirement.

Some people balk at this claiming they will only need 50% of their income as the kids have moved on, mortgage is paid off and they won’t need to commute. Well, how many times in your life have you already retired? You see what experience do you have? First off, remember the income and lifestyle you were living say 20 or 30 years ago? Could you go back to that lower income and lifestyle? More importantly… would you? Next, whenever you have paid off a debt (car or credit card loan), what happens to that money? Have you really saved it or do unusual expenses always eat it up? What do you think happens when your mortgage gets paid off? The same thing!!! One other item is your health expenses and premiums skyrocket during retirement to easily 8-10 times what you currently are paying (since your employer usually subsidizes a large portion of your health premiums).

With that out of the way, now answer me… how long will you live after retirement? Seriously!! That has a huge effect on the number needed. Hmmm. You have life insurance to protect if you die early, but, we are trying to plan for you not dying early.
Say your preretirement income is $50,000 per year. Using the 90% factor, then, you will need $45,000 in the first year of retirement. (We will cover the inflation factor very soon). Now the sad part is that the average baby boomer has about $50,000 saved for retirement. Ouch!

The sophisticated studies show the “safe” withdrawal rate from your retirement account (savings) should be about 4.5% for the first year (and then increased for inflation each year). This will assure an almost certain likelihood the portfolio will be able to provide income for 30 years. This assumes a portfolio mix of 60% stocks and 40% bonds. So, to fund a first year income stream of $45,000 with a 4.5% withdrawal rate, you will need a $1,000,000 portfolio at age 65.

Okay, you now have a simple formula to extrapolate how much more or less you need based on your current income.
If you need some ideas on how to build up your retirement nest egg, please contact us at founders@goundersgroupinc.net. For additional reading on this, go to the Kitces report at www.Kitces.com.

Many people were given savings bonds from family members many years ago and may have lost track of them. They may not even remember receiving them, or, they bought some on their own.

There are more than $16 billion worth of matured bonds that have not been redeemed. This is the final year Series E bonds earn interest. Thus, a $100 bond from 1960 is now with 700.

You can visit a website to see if you have an unclaimed bond. You could have substantial cash that will stop earning interest. I found a few that I had previously bought. Check out the website: www.treasurydirect.gov/indiv/tools/tools_treasuryhunt.htm.

Good luck and good hunting.

The roller coaster stock market over the past year has many people questioning their risk tolerance. When I do investment planning for my clients, we go through an exhaustive process. To develop a person’s Asset Allocation (AA), we take everyone through an Investment Policy Statement (IPS).

This IPS is about 20 typewritten pages and once completed, it portrays the amount of risk (volatility), or in plain English… how much you can tolerate losing.

The format of the IPS allows us to develop an Asset Allocation that is specific to the client. There isn’t a cookie-cutter-one-size-fits-all method like you see on many websites.

A second part of providing comprehensive financial planning is determining their “Behavioral Finance” attributes. You see, all of your attitudes about money are ingrained in you by your life’s experiences. For instance, many senior citizens were affected by the depression or World War II. The Vietnam War and the wild ‘60s influenced me. The young people today have been affected by the “tech wreck” and recently the subprime mortgage mess.

In developing legacy and holistic planning for my clients, I use a Behavioral Finance Quiz. It is 25 questions, done online, with no right or wrong answer, and can be completed in 5-10 minutes. It will produce your profile based on countless years of research. The report will tell you about yourself… it will amaze you. You will swear someone has been sitting in your home watching you.

Now, if you would like to take this quiz, at no charge to you, it will take a few steps:

Contact us at founders@foundersgroupinc.net and let us know your name, email address and phone numbers. We will email you a link with your user name and password. Once you complete the quiz then you will get a report. If you would like to discuss the results, I would be pleased to assist.

When I work on retirement planning for my clients, they rarely consider their health costs in retirement. Since most employees are covered by an employer plan and are only charged a small percentage of the true costs, well, they think this will continue forever.

As of this writing, Medicare and Medicaid are available to seniors but it is not cheap and the costs to individuals continue to rise.

A recent study by the Employee Benefit Research Institute found that a 65 year old man, who retires this year, will need $68,000 to $173,000 in current savings to have a 50-50 chance of covering health premiums and out of pocket costs in retirement. If he wants a 90% chance, then, the amount of savings needed jumps to $134,000 to $378,000. The variance depends on whether a former employer subsidizes health costs in retirement.

The cost outlook is worse for women because they tend to live longer and need more health care. A 65 year old- woman who retires this year will need between $98,000 to $242,000 in savings for a 50-50 chance and $164,000 to $450,000 in savings for a 90% chance.

The study found that health care costs in retirement rose 9% for men and 16% for women over the past year.

These estimates do not include savings needed for long term care or for basic living. As I have stressed with my clients, you need to begin planning now. Remember these two items (health and long term care) are in addition to normal living expense.

Start today or you know the outcome… discipline or regret.