When Should You Take Social Security Benefits?

If you’re nearing retirement, it may be time to consider whether you should take social security benefits early, on time, or late.

To make such a decision, it’s important to know how Social Security works.

Full benefits are available as early as age 65, depending on your date of birth.

You may receive benefits at age 62, but your benefits will be reduced.

Or you can delay benefits until age 70, in which case your benefits will increase.

When choosing which option is best for you, there are many factors to consider.

Two major factors are your life expectancy and whether you actually need the benefit to support your living expenses.

To understand why, remember that Social Security calculates monthly payments so that if you start early, the smaller payments received over a longer time could total the same amount as if you had started receiving benefits at normal retirement age.

On the other hand, if you start late, the bigger payments received over a shorter time could total the same amount as if you had started receiving benefits at normal retirement age.

However, all these calculations are based on your normal life expectancy.

If you live beyond that life expectancy, then delaying benefits will result in higher monthly payments and a potentially higher lifetime total.

If you don’t expect to reach or exceed your life expectancy, then it may make sense to start as soon as allowed.

There are many other factors to consider in deciding when to take Social Security benefits.

Before you make a decision, it’s wise to seek advice from a professional.

Social Security offices across the country have staff available to talk to free of charge.

Call the Social Security Administration at (800) 772-1213 for the location of an office near you.

Are Roth IRAs for You?

More people have access to the Roth individual retirement account (IRA) as a result of changing tax rules. The question, then, is: Could you benefit?

A Roth IRA differs from a Traditional IRA in regard to taxation. With a traditional IRA, contributions are tax deductible, but you pay taxes on withdrawals. With a Roth IRA, you don’t get a deduction when you contribute, but you won’t pay taxes on withdrawals, which include earnings that have accumulated over the years. That makes the Roth IRA attractive.

In the past, however, many investors couldn’t participate because their income was too high. But on Jan. 1, 2010, the rules for Roth IRAs changed. Now there is no income limit for individuals who want to convert traditional IRAs and employer-sponsored retirement plans to Roth IRAs. Although the converted amounts are subject to income tax, future withdrawals that meet certain holding requirements will be tax free.

So how do you determine if you should convert a traditional IRA to a Roth IRA? As a general guide, you may want to consider the past and anticipated future performance you expect from your investments. If you have an investment that you consider depressed in value, with appreciation potential, it may make sense to convert it to a Roth – because that way you won’t have to pay taxes on any potential increase in value.

On the other hand, you may not want to convert an investment you think is at or near an all-time high, such as a stock you bought for $25 per share that has climbed to $200 per share.

Planning: Is a Living Trust Right for You?

Some companies use fear-mongering tactics to sell living trusts to people who don’t need them.

So how do you know if you’re really a candidate for a living trust?

The primary advantage of a living trust – which is a legal entity that holds legal title to certain of your assets – is that assets in the trust do not go through probate, the lengthy and often -expensive court-supervised process of distributing your property to your heirs upon your death.

But you may not need the probate benefits, because there are a number of other ways to avoid probate, such as making gifts before death and adding a payable-on-death designation to an account. Plus, living trusts can be time-consuming and costly to set up and involve ongoing maintenance.

So, what should you think about when considering if you need a living trust? Age, wealth and marital status are three things to consider.

Living trusts often don’t make sense for middle-aged people in good health, because people at this stage in life don’t need to worry about probate for many years. The less wealthy you are, the less sense a living trust makes, because if you don’t have significant assets you won’t save much by avoiding probate. Finally, if you’re married, and you and your spouse plan to leave your property to one another, probate won’t be necessary for those assets.

A living trust may be helpful if you have children or grandchildren with special needs, if you own your own business or if you own real estate in more than one state (regardless of your age).

But if you want to know if a living trust is for you, it’s best to consult a financial advisor or estate-planning attorney.

Don’t trust any one-size-fits-all estate-planning product.

The legal and tax information contained in this article is merely a summary of our understanding and interpretation of some current provisions of tax law and is not exhaustive. Consult your legal or tax counsel for advice and information concerning your particular circumstances. Neither we nor our representatives may give legal or tax advice.

Dividend-Paying Stocks: A Good Option?

Dividend-paying stocks may have been left behind by this year’s stampede toward higher-risk investments – making them a potentially good option for investors seeking income.

Today, many investors seeking income invest in cash equivalents such as bank accounts, certificates of deposit or longer-term bonds. These vehicles often pay little interest, leaving investors at the mercy of inflation.

Dividend-paying stocks may be a tempting alternative to cash or bonds. They’re certainly riskier than cash or bonds, but they may be less risky than the high-flying growth stocks that dominated the 2009 market recovery. If you’re a pre-retiree or a retiree seeking income, you may be willing to sacrifice return potential for more income potential.

Where can you find dividend-paying stocks?

Try looking at established companies in stabler industries, also called defensive sectors.

These include food and beverages, health care, household goods and even telecommunications.

To make the job easier, you might consider an equity income mutual fund.

These funds tend to seek dividend-paying stocks, thereby doing the legwork for you.

Of course, no single investment is appropriate for everyone.

To determine if dividend-paying stocks are right for you – and to help locate them – it’s best to consult a professional.

Where to Put Your Money When the Dollar Declines

The decline of the greenback has captured the attention of newscasters around the globe.

Its effect on the economy is a mix of positives and negatives.

If you’re an investor, though, there are a number of ways to potentially profit from the falling dollar – if you’re up to speed on what’s out there.

Following are a few things you should consider:


Commodities are hard assets that tend to hold their value over a period of time. Gold is a commodity considered by many to be a safe haven in times of currency devaluation. You can purchase commodity- and gold-related securities through mutual funds and exchange-traded funds (ETFs).

Domestic Large-Cap Stocks

Because large companies often generate substantial revenue overseas, they have income in other currencies that can be converted into a greater number of dollars. Many large companies have departments dedicated to currency management.

Foreign Stocks and Bonds

When the dollar falls, prices of securities denominated in other currencies tend to rise. Adding such securities to your portfolio can help cushion it against a drop in the dollar.


Investing in the currency you believe will show the greatest strength against the dollar is a way to profit from a falling dollar. You can use this strategy by investing in currency-focused ETFs.

Are ‘Slow Money’ Investments Right for You?

You might have heard of the so-called slow food movement.

It’s a strategy that encourages consumers to take the time to cook meals at home.

But the slow food movement has also spurred a new concept.

It’s called the slow money investing strategy.

The premise of the ‘slow money’ strategy is that investors should consider putting some of their assets into local businesses.

The belief behind the strategy is that consumers need to really rethink how they look at the growth of their investments.

Instead of measuring that growth by the flashing numbers on a stock ticker, it should be likened to a slow ripening.

Much of the slow money investing strategy focuses on investing in local farms.

An example is farmer Martin Ping of New York.

He lets customers invest in certain projects, such as a cheese processing plant.

In exchange, customers can expect a return of around 3%.

They also get a source of fresh cheese, not to mention the good feeling that comes from knowing they’re helping a local business.

Despite this idealism, there’s plenty to be wary of when it comes to the slow money investing strategy.

Spending money to buy food at a farmers’ market is one thing, but putting your retirement money into a cheese processing plant is another.

Most investors don’t have the skills, time or interest level necessary to evaluate the soundness of a local business.

As a result, regional funds have been created in many communities to broker the interaction between investors and local businesses.

However, it’s still advisable to be wary of such investments.

Should Retirees Consider High-Yield Bonds?

High-yield bonds are a potential option for a retiree’s portfolio.

They have the potential to generate solid income.

It’s also important to note, however, that high-yield bonds doesn’t come with risks.

High-yield bonds are also referred to as junk bonds.

That’s because they’re rated below investment grade, or “junk” in Wall Street jargon.

A bond receives a below-investment-grade rating because the company that issued the bond is believed to have a higher chance of defaulting on its obligation to make timely interest and principal payments, thus resulting in more risk.

But even if the company doesn’t default, the prices of high-yield bonds can be volatile because the fact that a default could occur affects the price that investors are willing to pay for such bonds.

So how do you determine if high-yield bonds are suitable for you?

You need to look at more than the income potential.

Since it’s the combination of the income generated by the bond and any changes in the market value of the bond that determines the true return on your investment, you should consider “total return,”, a figure that combines both of these important factors.

If you look at the total return figure, you’ll soon see that in 2008, high-yield bonds took quite the pummeling.

The Credit Suisse High Yield Index lost 26.2% that year.

However, the index returned 37.43% between the beginning of 2009 and Aug. 31.

These swings show that high-yield bonds can fluctuate significantly.

In general, high-yield bonds can play a part in the portfolios of suitable retirees who understand what they’re getting into – but it should probably be a minor part.

Is Gold a Shining Investment?

With the stock market near record volatility levels, many investors have turned to physical gold, referred to as bullion.

But is it right for your investment portfolio?

Bullion is acquired in small bars or coins, and investors seem to be enamored with the shiny metal.

Bullion purchases by individuals nearly doubled last year, to 862 metric tons.

In fact, the U.S. Mint, the federal agency that manufactures gold coins for the nation, has had to step up its production this year, with coin sales through June just shy of the 794,000 sold in all of 2008.

But many financial advisers are wary of owning bullion. Why?

First, safekeeping is a risk.

Second, bullion is hard to use.

If the world falls into chaos, you can’t easily chip off a piece of your gold bar to buy, say, milk.

Third, gold can rise and fall in value like any other investment.

Finally, unlike stocks and bonds, gold pays no interest or dividends.

Instead of buying bullion, some investors might want to consider putting around 10% of their portfolios into gold-related investments.

These might include mutual funds that invest in gold-mining stocks or exchange-traded funds that invest in physical gold.

In the end, the decision must be based on your individual circumstances.

Plan to Ensure You Don’t Outlive Your Nest Egg

At age 65, the average life expectancy is 81.8 years for a man and 84.8 years for a woman.

Those were the figures as of March 2006 from the National Center for Health Statistics.

But with advances in medical science, it’s no longer a stretch to think that you could live to be 100. That’s great news – unless you run out of money.

Consider the following hypothetical example, which assumes:
•    You’re 64 years old and earn $60,000 per year.
•    You plan to retire at age 65.
•    You’ve accumulated $1,000,000, which you think will return 6% per year.
•    You’ll need $60,000 a year in retirement, excluding Social Security.

The good news is that if you have a 15-year retirement, from age 65 to 80, you’ll end up with almost $696,000 to pass on to your heirs.
The bad news is that if you have a 30-year retirement, from age 65 to 95, you’ll run out of money at age 88. (See footnote.)

But don’t worry.

With careful planning, you can recover, even after a downturn such as that of the past year.

You can save more, invest more aggressively or work longer. In fact, working longer might be the best option. According to Financial Engines, 50-to-60-year-olds can get their retirement savings on track after recent stock market losses without any additional savings if they work just two or three more years.

(Footnote) Assumes $1,000,000 in retirement savings has already been accumulated; another $60,000 is added. The money grows at a hypothetical 6% per year; $60,000 (in today’s dollars) is withdrawn each year. The example cited is hypothetical and for illustrative purposes only. It is not meant to represent performance of any particular product.

The Pros and Cons of Lifecycle Mutual Funds

Lifecycle mutual funds are designed to be easy, but if you don’t use them correctly they can throw your portfolio off balance.

Lifecycle funds offer a mix of assets designed to fit a particular investor’s time horizon. The asset allocation is changed over time as a certain goal, or “target date,” gets closer.

As a result, lifecycle funds can be good options for investors who want to take a hands-off approach to investing. But there are two potential pitfalls.

First, a one-size-fits-all approach seldom works in investing.

You may have the same expected retirement or withdrawal date as your neighbor, but you probably have different financial goals and different tolerances for risk.

The same fund, then, is probably not right for both of you.

Second, many investors don’t use lifecycle funds in the hands-off manner for which they were intended. Instead, they also own other mutual funds, stocks and bonds. This can open investors up to more risk. For example, if your desired asset allocation is 50% stocks and 50% cash, and your lifecycle fund achieves that, buying more bonds in addition to the fund will throw your portfolio off balance.

If you like the idea of a lifecycle fund’s simplicity but also want to invest elsewhere, you may want to put the bulk of your assets in a lifecycle fund and then allocate a smaller amount to other investments that aren’t likely to be represented in the lifecycle fund – such as sector-specific stocks.