We are almost 5 years from the worst of the last market crash. Can we relax and catch our breath now? Is it safe for a baby boomer to once again rely on the market for a secure retirement? Is it possible to design a financial system and market economy that won’t crash? The realists don’t seem to think so. I’m one of them.
In the past few weeks I have purchased more I-Bonds using cash in savings and bought more TIPS (Treasury Inflation Protected Securities) using assets inside my 401(k) account. I made these moves to (a) reduce risk and (b) increase the amount of future retirement income that is both guaranteed and inflation-protected. I will be continuing this strategy in 2014. Today I made some more year-end changes.
Last week I purchased a $10,000 I Bond, which is the yearly maximum allowed by current law. (This is a “per Social Security number limit.) You can exceed this limit by using your federal income tax refund to buy even more I bonds, but this would require me to over-withhold during the year which I do not want to do. I will make another I-Bond purchase early next year as I ease out of the conventional stock and bond markets.
The first quarter of 2013 is in the books and it’s time to look back and see what progress we made, if any. First up: net worth.[Continue Reading]
I spent some time this weekend looking back at 2012. The number one statistic I evaluate is our net worth because that is what will be generating our retirement income when the time comes. Investment performance is also important but not as important to me as net worth. For example, our retirement portfolio could increase in value by 20% over the year but if we offset that with more debt or spending that depletes our cash, we really haven’t accomplished much. It’s about accumulation.
Once again Congress put a temporary fix on a long term budget problem. The markets reacted positively but with continued uncertainty. Volatility remains and it is still too much for us. We continue to add to our retirement accounts at a significant rate. Therefore, to maintain a positive trend until some reasonable level of market stability is found, we are staying heavy in cash.
The Federal Reserve announced a policy change this week that baby boomers should pay close attention to. For the past few years, the Fed has told the public that the interest rates it controls would be maintained at or near 0% until at least 2015. That has now changed because the Fed has instead tied its interest rate policy to the unemployment rate. On Wednesday, the Fed said it would maintain interest rates near zero if the unemployment rate remained above 6.5 percent, further provided that inflation does not rise above 2.5 percent.
Intriguing title to this post, don’t you think? I thought so when I read the Money magazine article with a similar title. So what is the worst investment mistake that a retiree can make? Taking risk when you don’t have to.
Insurance companies have pushed hard to sell variable annuities with guaranteed lifetime income riders. These products were attractive to baby boomers who were attempting to build their own “pension.” Sadly, many of these same insurance companies are trying to undo and undercut the vary products that they sold. A recent case in point: Prudential.
Single premium immediate annuities have become more popular as a tool for generating lifetime retirement income. However, immediate annuities are insurance policies that do not make sense for everyone, despite the appeal of having income security. Two circumstances come to mind when you should probably not buy one.