Paul Ferraresi

I find that as each new year comes, people often state, “Gee, where did the year go? It went by so quickly.” And yet, other times people bemoan that things are moving too slowly. Since we, in general, are here on this planet for 100 years and then pass away for eternity…here is a glimpse of how long eternity is….

“In the cold northern wastes there is a mountain a thousand miles long, a thousand miles high. Once each thousand years a small bird flies north. This small bird flies north to sharpen his beak on the cold hard stone of the mountain. When the mountain is thusly worn down, one second of eternity shall have passed.” –Tibetan Poem

One of the greatest frustrations I experience is trying to get clients to accept that they will live a long time after retirement.

In the past 25 years, medical breakthroughs, such as stents, have extended people’s lives without debilitating surgery. Weekly, you see in the media celebrities or the “average person” living well into their 100’s. In fact, the fastest growing segment of Americans are those living past age 100.

So how do you plan financially for this event? You work from age 25 to age 65…a mere 40 years to accumulate enough money to live 35 or 40 years after retirement. Funny, if you save 10% of your gross income in your working years, and, assuming no rate of return (common today in bank accounts) for the 40 years of work…you will have, at 65, four years’ worth of monies after retirement. If you save 25% of your gross, with the same factors, you will have 10 years of living expenses available at retirement. Both scenarios assume no inflation.

The authors of a new study, The Problem With Living Too Long, from the Institutional Retirement Income Council, report half of all females who are aged 65 today will live to almost 88. Thus, if you, as a 65-year-old female, guess you will live to be 88, then, that gives you only a 50/50 chance of not outliving your income. Statistically, a quarter of those women will live five years past age 88 and 10% will live to age 98. So, if you want a 90% certainty of how long you will live…better use age 98.

You are playing with loaded dice if you say, well, I’ll be dead at 85 and so I only need to plan financially until then. How will you pay your bills when you live longer? Are you going to call on your kids to fund your lifestyle? (They probably will be retired themselves.)

The better choice is for people to work longer, save more, or live on less now. This funding requirement should not be a surprise to anyone. You have had your entire lifetime to plan for your retirement.

Sit down with a professional advisor…this week, and have them map out at least a “rough and dirty” template as to the path you are on. I have done scenarios over the years where people have only a projected 5-30% of what they will need in retirement. They are in shock since they never thought about it. (Must be because they are too concerned over who will win on Dancing With the Stars.)

Start now…a small change can produce tremendous results.

The chart below will give you an idea of what you can expect:

THE LIFE EXPECTANCY GAMBLE
10% of all 65-year-olds will live into their 90s

65-year-old males:

50% will live to 85.99 — 25% will live to 90.78 — 10% will live to 94.74

65-year-old females:

50% will live to 87.97 — 25% will live to 93.17 — 10% will live to 97.64

65-year-old joint life expectancy*:

50% will live to 91.07 — 25% will live to 95.07 — 10% will live to 98.80

Source: Actuarial Consultants Inc. Data is based on 2013 mortality rates for people who do not hold annuities using IRS projections based on July 2000 tables from the Society of Actuaries.
*At least one spouse will live to the age indicated.

You can deal with this issue like the “ant or the grasshopper.”

Ah yes…discipline or regret.

As gold prices exploded through $1800 and $1900 per ounce, people continued to ask me, “Should I buy gold now?”” It has more than doubled in the last few years. My response, as usual, was, “Why didn’t you buy it when it was $700-$800 per ounce before it took off?” The classic answer was…it was too low then. Oh, I see. So you do not believe in buying low and selling high? The majority of American investors are “wired” backward at the factory when it comes to investing. They buy high and sell low. Here is proof, again:

Many people that recently bought gold at over $1900 per ounce have told me they just sold it, as I write this today, with prices at $1690 per ounce!!!

You do not buy gold to make money. It is a hedge against a devaluing dollar, a safety net against war and financial crises. As gold went up over the last few years, all your dollar asset values were dropping due to the devaluation of the dollar so you did not make or lose anything. It is a hedge. It is simply an insurance policy.

Will it go higher from here? Here are some notes from some gold experts who see prices rising due to the following:

•China’s gold jewelry consumption has exploded and will continue to do so as their wealth increases and the affluent buy finer things.

•Although the Chinese government did open up the gold market for jewelry sales in the early 1990s (isn’t that nice of the controlling government to do that?). There still was a value added tax of 17% on gold jewelry and a monopoly in sales by the Chinese government.

•In 2003 most of the controls and taxes were removed in China and thus helped push the price up recently. Demand for gold bars has grown even faster due to (1) rapid income growth, (2) lack of investment alternatives, (3) low interest rates on bank deposits, and (4) as a local currency hedge.

•China is the world’s largest gold producer, but, still must import a great deal to meet demand.

•Also, a growing concern in China over rapidly increasing inflation encouraged the purchase of gold as a safe haven.

•Massive worldwide marketing is also creating more demand in all corners of the globe.

So, should you buy gold now? If you look at the government policies that have created the demand for gold, and you think those negative policies will be reversed quickly, then I would not buy. If you see these negative policies staying around, world income levels rising and it taking a while to solve the world’s financial crisis, then I would be a buyer.

How much gold and at what price? See your financial advisor…. Isn’t that why you pay them their hourly fee?

If I had my way, I wish for the price of gold to drop to zero. Then, there would be peace, harmony and love all over the world. People would be holding hands and singing all day long. With that in mind, I have a bridge in Brooklyn to sell you along with swamp land in Florida! And…a very special deal for you…. I can get Bernie Madoff to be your investment advisor from behind bars. Are you laughing yet?

Of the early astronauts who went to the moon, all had psychological problems upon their return. They drank too much or somehow got into trouble. The main reason was: where do you go, now that you have been to the moon? Later in the space program NASA made sure all astronauts had plenty of projects to keep them busy after their return from the moon.

It’s the same for you and me and our goals: once you complete them, make another list. My father lived to be 83 years old. You can’t imagine the goals he had at 83: get his driver’s license renewed. He got it renewed for four years.

• How far into the future should you plan? As far as you can.
• How many books should you read? As many as you can.
• How many friends should you make? As many as you can.
• How much should you earn? As much as you can.
• What should you try to be? All you possibly can.

The purpose of this exercise is to stretch you, get you to think, get you to wonder, ponder…. I wonder what would be possible if I could get everything I wanted. What would it be like?

Goals for Personal Accomplishment
Once I reached eight years old, the fires were lit for me and they have never gone out. Since I was eight years old, no one ever said to me, “When are you going to get going? When are you going to get off the couch? When are you going to get off the dime?” I only hear, “When are you going to slow down? You can’t do that many things. You’ll have a heart attack and die.”

It’s easy to get lazy in designing the day, the month, the year, or your life. It’s easy to cross your fingers and hope it all works out. The way to keep this up and not get lazy is to teach it to others; e.g., your family.

The Why Is Important
Pick out the top four goals you want to complete by the end of this year. Then, write a short paragraph:

“Why These Four Goals Are Important to Me.”

When the Why gets big, powerful, and strong…

The How Seems to be So Much Easier
Without a strong enough Why, the How seems too difficult to accomplish. How do you manage your time? If you had strong and powerful goals you would figure out how to manage your time if it was worth it. If it wasn’t worth it, why bother struggling with the art of managing your time if it really doesn’t matter?

We are now approaching the final quarter of this year. How are you doing on the goals you set nine months ago? Take this short quiz to determine your priorities and finish the year strong – even if it means completing only one of your goals.

1. You win $100 million in the lottery. What would you do with the money? What would you change in your life? What would you do differently?
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2. If you knew you had only five years left to live, what would you change in your life?
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3. If you found you had only 24 hours left to live, what would you regret not having done; regret not having had; or regret not having been in your life?
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The Fed stopped the QE2 program on June 30, 2011. The whole purpose was to provide liquidity to the Treasury market and to appease the Chinese who hold the greatest amount of Treasury debt. The Chinese were concerned that no one would buy their holdings.

The Treasury wants to widen the pool of potential purchasers of Treasury debt. This will include impossible mandates (where they can do such things) and huge offering incentives (where they cannot get what they want). The rumblings do NOT look good for common folks like you and me.

One proposal is to require 401(k)s to hold a certain percentage of their assets in Treasuries at a risk of losing their tax free status. Another is encouraging pension plans to increase their portfolios with more Treasuries. Here is another… allowing companies with overseas cash to bring it home under a “tax holiday” as long as the majority goes into Treasury debt.

Under such plans (1) your 401(k) returns would be less over the long term, and (2) pension plans would need to increase their holdings from the present 6% to 16%, which would force companies to contribute more, costing companies more and forcing them to cut other costs (jobs).

Thus, Uncle Sam is trying to create demand for Treasury debt via the carrot and the stick. The good part… (hmmm) the U.S. is borrowing money from its citizens to stimulate the economy, so these same citizens will pay themselves back with higher taxes. This becomes an Abbott and Costello routine or a chicken and egg game.

As stated in this blog countless times, get out of your 401(k)s, or, stop contributing at least. Get into a non-qualified program that will grow tax free (not deferred); you take it out tax free and, when you die, it transfers income tax free.