Proposed Federal Budget Plan Caps Retirement Savings

By Terry Savage

The government wants to limit how much money you can save in a tax-deferred retirement account, saying too many people are taking tax deductions for saving more money than they are likely to need.

That’s a proposal in the president’s much-delayed budget plan — a proposal the administration figures will generate an additional $9 billion in revenue over the next decade, by capping total retirement savings for individuals.

But at what cost? The budget gap might be narrowed now — but this limitation would leave a huge swath of baby boomers without enough savings to fund a 30-year retirement, and offset the impact of inflation.

The irony is that this is “IRA season,” when financial services firms are focused on getting people to put the allowable limit of $5,000 into their IRA as they pay their taxes. The limit rises to $5,500 for 2013 contributions and $6,500 for those 50 and older who need to catch up — in recognition of the need for more, not less, retirement savings.

The budget proposal would prohibit workers from having more than $3 million in a retirement account. But that math simply won’t work for the middle class.

If an individual starts an IRA in her 20s and contributes only $2,000 a year for 50 years, and earns the historic average return of nearly 10 percent annually in an IRA, she would have a retirement account worth $2.5 million at retirement age.

The Ibbotson historical average return for a diversified portfolio of large company American stocks with dividends reinvested over the past 70 years is 9.8 percent.

But will even $2.5 million be enough to support your lifestyle over a presumed 30-year retirement period?

Most financial analysis says you could withdraw about 4 percent of your diversified retirement account every year and make your money last your lifetime. So having a $3 million portfolio the day you stop working means you could take out about $125,000 per year — pretax, of course. And assuming tax rates will be higher, not lower, you would have about $90,000 per year to spend.

That sounds great, until you realize that at even Ibbotson’s historic average inflation rate of 3 percent annually, the buying power of your money would be cut in half in less than 25 years of your retirement.

Is it better for our nation to have a generation living on the equivalent of $45,000 a year in retirement? What cars or health care will they be able to buy? How much money will they be able to leave in their investments — funding capital growth for newly created businesses? Or helping their grandchildren pay for college? Or buying Treasury bills to help fund our national debt?

The sad fact is that most Americans won’t have anywhere near that $3 million amount saved when they retire. They will be dependent on a Social Security program that, under the new budget plan, will give less adequate cost-of-living increases.

This proposal to lower the cap on total retirement savings is designed to make everyone share this dependence — or force them to work (if they can find jobs) until they die.

Limiting incentives to save for retirement is the last thing this country needs. Since our politicians — both parties — can’t figure out how to make our government more solvent, they should at least keep encouraging us to build our own savings for the future. — CNS

Terry Savage is a registered investment adviser and is the author of the new book, “The New Savage Number: How Much Money Do You Really Need to Retire?”

Don’t Be a Target…or a Victim

Consumers lose billions of dollars every year to various kinds of consumer fraud. Thousands of Vermonters are being targeted and people over 50 are especially vulnerable, accounting for more than half of all victims.

Whether it’s bogus investment deals, the grandparent scam, e-mail ploys, lottery scams, or the newest ID Theft scheme,  sophisticated con artists are busy at work coming up with new ways to get you to hand over your hard-earned money. It’s important to keep up to date on the latest scams and schemes to help protect you and the people you care about.

For National Consumer Protection Week 2013, Vermont Attorney General William Sorrell has released a list of the top ten scams that targeted Vermont consumers in 2012. These numbers only represent what has been reported. The actual incidence of scams in Vermont is far higher. In 2012, the top ten categories of scams reported to the Attorney General’s Consumer Assistance Program (CAP) were:

“Phishing” scams: 563 complaints were filed with CAP in 2012 regarding attempts to collect sensitive information, usually to access bank accounts or steal someone’s identity. The most common were phony bank text messages (“Your account has been locked”) and bogus offers by text message (“you won a $1000 gift certificate to ….”). Don’t reply to unsolicited texts.

Contest, sweepstakes or lottery scams: Vermonters filed 220 reports of receiving a bogus sweepstakes, contest or lottery notice or telephone call. Many of these scams originate overseas (Jamaica in particular) and all want some sort of upfront payment to receive “winnings” that will never come. Never pay up front to receive winnings.

Bogus computer tech support scams, viruses, and ransomware: CAP received 95 complaints from consumers regarding phony tech support calls, viruses and other malware from fake e-mails and other sources, and “ransomware” that hijacked their computers unless they made some payment. Never click links in a strange e-mail, or allow remote access to your computer.

Imposter scams: 89 complaints from Vermont consumers in 2012 reported phone calls from someone posing as a family member in an emergency. A number of Vermonters lost significant money to this heartbreaking scam. Never wire funds unless you can verify the emergency.

Debt collection scams: CAP received 89 complaints from consumers in 2012 about debt collection scams. Scammers barrage consumers with telephone calls at their homes and workplaces, making false threats of imminent arrest, legal action or financial ruin. Most of these calls originate from overseas, using technology to hide their location, and can be difficult or impossible to stop. Never pay a harassing collector over the phone—demand proof of the debt.

Phony invoices targeting Vermont businesses: Vermont consumers and businesses are being targeted by scammers trying to steal money through bogus invoices. 87 reports of phony invoices were filed with CAP in 2012. Check your bills carefully to make sure you really owe.

Security system scams: 76 reports were filed with CAP regarding “free” home security system scams in 2012. Always ask for local references for anyone offering to do work on your home.

Other telemarketing scams: CAP received 73 complaints related to other or general telemarketing scams. Many of these involved unlawful robo-calls. Hang up on robo-callers.

Online listing scams: 66 complaints were filed with CAP regarding some form of online classified advertisement. In some cases, consumers who had listed an item for sale were contacted by a scammer trying to send them a fake check, in others consumers responded to an ad for an item for sale or a rental unit that didn’t exist. In cash, in person is the only way to be sure.

Loan scams: 56 complaints were logged at CAP regarding loan scams. These scams ranged from unlawful “payday” loans to phony advance-fee loans that took money from consumers without ever paying a dime. Beware of online lenders. Demanding fees before making a loan is illegal in Vermont.

What can you do if you have been targeted?

Cease all contact with the scammer: If you have been targeted by a scammer, do not continue contact. You will not be able to get any useful information from continued contact.

Stop or report any fraudulent wire transfer of funds, checks or credit card transactions: If you have sent funds, contact the financial institution or wire transfer company immediately to report the fraud and halt the transaction.

Contact authorities: Contact your local police to report the fraud, as well as the Attorney General’s Consumer Assistance Program (CAP). CAP tracks fraud reports and uses the information in its efforts to work with local, state and national law enforcement and consumer protection agencies.

Know how to spot a fraud: Vermonters’ best defense against this predatory activity is to understand and avoid these scams altogether.

Vermont consumers can contact the Consumer Assistance Program with any questions, concerns or requests for more information toll free in Vermont at (800) 649-2424 or at (802) 656-3183, or visit the website at www.uvm.edu/consumer. AARP Vermont and the Consumer Assistance Program will be holding a number of free forums on this subject around the state in the coming months. For more information on dates and locations, contact Dave Reville at 802-951-1303 or [email protected]

Money and Memory: Beyond Retirement Planning

By Christine D. Moriarty

Quality Control Check,” I would announce after dinner. During my visits to my parents’ house, part of our routine was a financial review of their checkbook. I confirmed the balance was correct and monitored the checks being written.

Our time together included answering any questions they had on their bills. Then, I would go over the mail with my mom. If she was unsure about how to respond or if to respond, I would offer to take it off her plate and handle the correspondence. This was all very ironic when you consider that my mom was a fabulous bookkeeper and recordkeeper who always had her checkbook balanced to the penny. I can still clearly see the night she asked me to help her with her checkbook after dinner – she was off by a penny after spending 45 minutes adding, subtracting and pondering the options – I finally offered to give her the penny. I told her not to worry about it. Two days later, she called me and had found the error. But that was all in the past. Recent medical issues had changed her financial and organizational skills.

Why were my parents now willing to bare their financial life? My mom had been diagnosed with the beginning stages of Alzheimer’s and while my Dad was sharp as a tack, he was going blind. They managed together on most things and both handled the finances together. However, knowing someone was overseeing what my Dad could no longer see gave him great comfort. And for my mom, the graceful way she accepted the added help mirrored the way she handled her whole disease. She was pleasant and appreciative. This ranged from our quality checks to the medical and professional care she received. Initially, she was totally aware her cognitive skills were not as sharp. By working with her instead of taking all financial and household management away from her, she could feel useful and maintain her routine of the mail and bill paying as she always did with my father. The extra assistance gave her the feeling of confidence that the household financial management was handled properly.

Memory loss leaves clues. One of those clues is money. Picking up those clues are essential to health and well being. Early detection creates an opportunity to intervene before those memory problems get worse. Awareness may mean medication changes that improve memory, identification of vitamin deficiencies or early detection may prevent a bigger stroke or more damage physically or financially.

Executive functions are the abilities to activate and integrate the consequences of decision making, including planning and how we manage money. In some injuries, such as a stroke or head trauma, executive function declines immediately, but also those lost capabilities can return with time and healing. A progressive disease can cause a gradual decline of these skills that never return. Increasing age can be a factor for memory loss, but this can hit any age.

Alzheimer’s and any type of dementia diagnosis can be scary to the family. Over time, the responsibilities of bill paying and handling the mail need to be decreased and eventually phased out. However, taking away normal routines after the shock of diagnosis may not serve the individual best.

Do not pull all financial responsibility at once and don’t treat your parent like a child. Instead, if you have a legal power of attorney, ease into what can be done by working as a team with the patient. Legally you can restrict what damage can be done by having low limits on credit cards, monitoring bank accounts online and freezing credit options.

Each situation is unique and should be based on the person involved and their injury or illness. They may not want to deal with the checkbook since it has always been a stressor in their life. Or they may want one because this has been the normal routine in their life and they feel more in control when they have some money and decision making power.

The willingness of a family member or partner to pick up clues of the needs of someone with memory loss is personal. For some trusted advisors and friends, they feel it is entering on family turf. Money is a domain that is personal and often an elder is territorial. Why take the risk to initiate a plan? According to research by Leilani Doty, PhD, Director, University of Florida Cognitive and Memory Disorder Clinic:

“People with a decline in executive function may be vulnerable to scams, spending large amounts of money on worthless products such as cures for aging or unnecessary home repairs.”

Often, a crisis brings attention to the needs of a parent or spouse. A financial team can lessen the chance that a crisis will hit your family and jeopardize your retirement.

Here are the pieces you can acquire to protect yourself and your loved ones:

Create solid legal documents calling for power of attorney over financial affairs when needed.

Have a good medical team and consult a doctor who understands these issues.

Build a trusted team of financial professionals: Certified Financial Planner, accountant, lawyer

Be sure a family member is aware of your financial routine.

Today there is a wealth of resources for support and information onr coping with money, memory, aging and caregiving.

Christine D. Moriarty is a Certified Financial Planner and the owner of MONEYPEACE in Bristol, Vermont.

The Big Con:Local Seniors Being Targeted by Scammers

By Luke Baynes

Y

ou’re 80. You live alone. It gets lonely at times, but you manage. One day a nice young man knocks on the door. Over a cup of coffee he tells you about a new Medicare prescription drug plan that will save you money. You give him your name and your Medicare number.

You’ve just been scammed.

As Patrice Thabault, owner of a Home Instead Senior Care franchise in South Burlington, described in a press release, seniors are being increasingly targeted by scammers.

“Scam artists are specifically targeting seniors because they are the fastest-growing segment of the population, which has led to increased demands on law enforcement agencies,” Thabault stated. “This scenario has the potential to put more local seniors than ever at risk of losing their life savings, their homes and their trust in others.”

Home Instead has teamed with the National Association of Triads to create a “Senior Fraud Protection Kit” as a resource to protect seniors and their families from fraud.

The kit identifies the most common types of senior scams, such as telemarketers promoting phony charities or fraudulent sweepstakes mailings that promise big paydays if the winner pays “processing fees.” It also provides tips to avoid being taken in by con artists.

Suggestions include signing up for the national Do-Not-Call Registry and researching sales offers through the Better Business Bureau and other consumer protection agencies.

Anita Hoy, director of the Vermont Senior Medicare Patrol, which is affiliated with the Community of Vermont Elders, explained that the SMP program protects seniors from more than just Medicare fraud.

“The Senior Medicare Patrol program is located in every state, and it’s part of a national effort,” Hoy said. “The idea behind it is we prevent and educate people on Medicare fraud and abuse, but the caveat to that is you can’t do Medicare fraud (protection) in isolation, because just by means of using somebody’s Social Security number as their (Medicare) account number, you run into ID theft and all kinds of things.”

Hoy noted that common forms of Medicare fraud include erroneous bills for services not rendered, inflated commissions on otherwise legitimate services or outright identity theft.

She recommended that seniors not buy products from door-to-door salespeople without first doing research or seeking the advice of friends or family members.

“We ask people not to talk to salespeople who knock on their doors, and if they want an insurance product, that they call the insurance company themselves,” Hoy said. “We also ask folks to have a friend or family member join them in these conversations.”

Above all, Hoy cautioned that seniors should protect their bank account numbers and their Social Security numbers—which often doubles as their Medicare numbers—at all costs.

“We have had, in the last few years, when Social Security wanted more people to be doing direct deposits, there were scams where the scam artist would call seniors and try to get their bank account numbers under the guise that they were having direct deposits made,” Hoy said.

“So with the Social Security number, bank account numbers usually follow. Once you have those two numbers, you kind of own a person.”

Mortgage Rates Make This Best Time to Buy or Refinance

By Terry Savage

He (or she) who hesitates is lost! It’s an old saying, and right now it applies to the housing market. Yes, the economic headlines are still gloomy, many are unemployed and foreclosures are actually rising. But paradoxically, those obvious facts are creating one of the best home-buying opportunities in history.

Not only have prices fallen by 30 percent or more in many locations, mortgage rates last week hit 60-year lows. The average rate on a 30-year fixed-rate mortgage fell below 3.5 percent for the first time since the 1950s. The average rate on a 15-year fixed-rate mortgage is now 2.8 percent.

Combine low rates and low prices, and you have an incredible opportunity. But for most people, that opportunity will be obvious only in hindsight. We are all conditioned to remember only the recent past. And, for housing, that recent past is scary. Gone are the stories of profits made on the sale of a home. They have been replaced with eviction notices and lost equity.

Just as no tree grows to the sky, no market continues in one direction forever. But only a few people have the discipline to step back, gain perspective and take the risk of going against the obvious current trend.

Owning your own home is still a centerpiece of the American dream. It was the dream of the pioneers who took wagon trains west, seeking their own land. It was the dream for the immigrants who arrived on our shores. It was the dream of the post-World War II generation who built the suburbs. It was the city condo dream for a generation of yuppies. And home ownership will once again be the dream for the next generation of American prosperity.

It’s just that the benefits of building equity with a tax-deductible mortgage are less apparent now than they appeared to be just a decade ago, when homebuyers never dreamed that home prices could fall. That fear of losing money on a home is one of the factors making this the time to buy — if you have good credit and a down payment. Fear helps push prices down, creating the opportunity for future gains.

I have always advised that your house is not your “piggy bank.” But properly financed and under the right circumstances, the single-family home will once again become the foundation of middle-class financial security.

And for those who already own a home, and may have refinanced in the past, it’s time to do another refinancing and lock in these record low rates. The rest of the world has been sending money to the presumed safety of the U.S. dollar, helping the Fed keep rates low. But if Europe survives as a single economic unit, or if American debt problems become overwhelming, you can be sure that dollar fears will push rates higher.

Whether you’re getting a mortgage for a new purchase or considering a refinancing, it pays to be creative and to compare rates and deals online. No longer is your hometown bank the automatic place to start — although you should definitely check with your local lenders to see if they can match the best rates online.

The place to start looking is Bankrate.com. They’ll quote for both new purchases and refinancings, both 30-year and 15-year fixed-rate deals. You’ll input your city and state, so they can give you quotes from lenders who can actually do your deal. And they offer quotes on mortgages with either 20 percent or 5 percent down. (The latter are more difficult to obtain.) You’ll be asked to input your credit score, as well. Bankrate.com stands behind these quotations, so you know you’re not being offered a teaser deal.

It makes absolutely no sense to take an adjustable-rate mortgage now. The slightly lower rate is not worth the upside exposure if inflation fears should return. The whole idea of making this purchase now is to lock in this financial opportunity.

Be sure to compare deals by using the APR — annual percentage rate, which includes the effect of points you might pay. In fact, since banks are flush with money to lend to those with good credit, you should avoid paying any points on your mortgage and refinancing.

Remember that property taxes and insurance will add to your monthly payment. You can likely get a better deal if you purchase homeowners insurance, paying the bills yourself using an automatic debit system.

Here’s a tip from my mortgage experts, one that I had never heard of before. You can do a deal with “negative points.” What’s that? A very creative way to avoid out-of-pocket expenses for a new survey, title search and appraisal.

You know that you can pay points to “buy down” your mortgage rate. People have been doing that for years, but it makes no sense in today’s low rate environment. “Negative points” is just the reverse. After you do your deal and are told how much you must pay upfront in closing costs and fees, you can offer to pay a slightly higher rate on your mortgage — to avoid those out-of-pocket costs! And that could make enough of a difference to give you a larger down payment or make refinancing affordable.

Sure, there’s bad news about the economy, jobs and housing. But America will recover — and you’ll wish you had taken advantage of a once-in-a-generation opportunity.

When Can I Retire?

By Luke Baynes

There was once a time, in the not-too-distant American past, when a fellow needed only to pack a lunch pail and punch the clock when the whistle blew, and after 40 years of hard work he could expect a rocking chair by the fire and a financially comfortable retirement.

Times have changed.

“The three-legged stool of retirement (social security, pension and savings) for that older generation has been disrupted,” said South Burlington-based financial adviser Daniel Streeter. “A lot of companies have overpromised and underdelivered on their pension plans, and that’s only going to get worse. The day of reckoning is coming for pension plans as well as social security.”

Although many economists don’t predict a shortfall in the federal social security system for another two decades and many company pension plans have been rolled into retirement plans, the imminent reality that the three-legged retirement stool will be reduced to a one-legged swivel chair has resulted in a generational shift in fiscal thought.

“I think the reality has set in for the younger generation that they – and they alone – are responsible for their security in their retirement,” Streeter said. “Nobody else is going to provide that for them.”

Don Dempsey, a Williston-based financial planner, had similar sentiments.

“I think the message, especially for younger people, is no one’s going to do it for you,” Dempsey said. “You don’t need to read the Wall Street Journal every day, you don’t need to follow the stock market, but people can do very well with just buying a low-cost index mutual fund and just averaging in over time.”

ANNUITIES

For many people nearing retirement, the question is simple: how do I replace the income from my salary when I’m no longer drawing a paycheck?

Toward that end, many advisers recommend annuities, of either the immediate, fixed, variable or equity-indexed variety – often with a lifetime guaranteed income rider attached for the latter two categories. Although immediate annuities most closely mimic pensions, the other forms of deferred annuities offer greater earnings potential – with commensurate risks attached.

Fixed annuities aren’t subject to the up-and-down roller coaster of the stock market, but they carry inflation risk. Variable annuities often come with guaranteed income riders to combat market risk, but the rider comes at a cost, and the income stream is based upon the claims-paying ability of the financial institution and can only be accessed in set payments. Equity-indexed annuities, while they won’t lose money in the market, can have zero gain in a down year and can have their caps and participation rates reduced by the insurance company in affluent market conditions.

In most cases, annuity contracts have penalties for early withdrawals – making them unsuitable as a large portion of a person’s overall portfolio – although as part of a diversified asset mix, annuities can help replace income shortfalls in retirement.

REDUCE DEBT, SAVE MORE

Although opinions vary as to the best means of preparing for retirement (traditional versus Roth IRAs, stocks and bonds versus mutual funds, fixed versus variable annuities, etc.) most financial planners agree on two basic principles: reduce debt, and save as much money as possible.

“There’s no one solution for every person,” said Streeter. “It’s just a matter of getting them to acknowledge their current reality and then to get them to move in the direction of making progress.”

For Dempsey, debt is one of the biggest deterrents to a successful retirement.

“Generally, my philosophy is even though interest rates are so low, I don’t like debt in retirement,” Dempsey said. “A retired person is not going to want to be all in the stock market, so if some of the money is in bonds making 2 percent and you’re paying off a mortgage at 4 percent, how does that make sense?”

Even with proper debt management, South Burlington-based financial planner Josh Patrick said the trend is that more people are now working past the “normal” retirement age of 65.

“I think it’s probably a good idea to think you’re going to work until your mid-70s,” Patrick said. “It might be worthwhile when you’re in your 50s to think about what your ‘retirement profession’ is going to be.”

But while 75 might be the new 65, the reality for many seniors is that they will need some form of long-term care in their lifetime.

“Long-term care protection is something we start to have the conversation about once people turn 50,” said Streeter, who works in partnership with Jim Hedbor, a certified financial planner. “We do utilize long-term care insurance if it’s appropriate, but what we’re often doing now is utilizing life insurance with the chronic, terminal and sometimes critical illness riders. A life insurance policy can serve multiple purposes and multiple masters. It can augment retirement, obviously it can be used as a death benefit, or it could be used in the event that you become critically, chronically or terminally ill.”

OTHER OPTIONS

Dempsey noted that although people should ideally be saving for retirement throughout their lifetime, there’s still hope for those who might not be fully prepared when they reach retirement age.

“Downsizing is always an option,” Dempsey said. “I’ve certainly seen a lot of people who are retired in houses too big that really drain them. It just makes the numbers a lot easier.”

Another option for people whose net worth is mostly tied up in their home is a reverse mortgage, in which homeowners aged 62 or older can access a portion of the equity in their home through a loan program administered by the U.S. Department of Housing and Urban Development.

“(A reverse mortgage) very well may be a viable solution for some people who have their home paid off and are looking for an extra $500 or whatever to augment their income and they have no other source of income other than the equity that’s trapped in their home,” Streeter said.

But Streeter added that there are other less costly options – such as a home equity line of credit – that can be utilized if one is proactive.

“If you’re planning correctly and appropriately, you can completely circumvent the reverse mortgage process,” said Streeter. “With proper planning, one can plan to have full control and utilization of their home equity without a reverse mortgage.”

Smart Dividend Strategy Pays Off

By Terry Savage

Why is the stock market rising?

The economy is still in rough shape, unemployment remains stubbornly high, housing remains weak and the European financial system is a mess. Still, U.S. stocks are rising, and we’re seeing daily headlines about the market hitting new four-year highs.

Why? Well, two reasons. First, despite the headlines, the economy is growing again, at least a bit. And second, stocks are the “least worst” place to put your money.

With short-term CDs, Treasury bills and money funds paying practically nothing — and designed to stay at that level by promise of the Fed — the dividends paid by large companies are attractive. And stocks hold the possibility of price appreciation as well as dividend growth.

Over the past 70 years, dividends have contributed nearly half of the Dow Jones industrial average’s total return. And despite the economic slowdown, dividends have been increasing in the past few years, as companies hesitate to build new factories and hire more people. Instead, they are returning profits to their shareholders.

BUYING DIVIDEND-PAYING STOCKS

Suddenly, all attention is focused on dividends. At the World Money Show in Orlando, Fla., nearly every speaker was focused on raising returns through finding investments with high yields. It was a message lapped up eagerly by a primarily retired audience, hoping they could find a way to increase their income without digging into their savings to fund living expenses.

But just as there was a danger in focusing on “hot” Internet stocks in 2000 or “hot” financial stocks in 2007, there are dangers in focusing solely on high yields today.

Jeffrey Rode, managing director of Segall, Bryant and Hamill, points out the difference between attractive current high yields and future prospects for growth. He counsels, “Remember, it’s growth in income, not growth and income, that’s important. Dividend payers outperform non-payers. And dividend growers outperform high current yield. Dividend growers are also your hedge against inflation.”

In their most recent newsletter, Ralph Segall notes that since 1972, the average annual total return of the S&P 500 was nearly 7 percent. But the companies in the S&P 500 that don’t pay dividends had an average annual total return of less than 2 percent. And the stocks within the index that initiated or increased their dividends during that long period had an average annual total return of nearly 10 percent.

That’s where research comes in. Yes, you could buy groups like real estate investment trusts, master limited partnerships and utilities, all of which pay attractive, current high yields. But the real trick, according to Rode, is to find stocks that will increase their dividends, and also provide an upside price potential, because the company itself continues to grow and generate cash earnings.

Rode notes that a modest, but growing, dividend can give you more upside in the future than stretching for the highest yields today, suggesting that you “buy 2-5 percent current yield with potential 3-8 percent annual dividend ‘growth.’”

He asks: “How would you like to have owned Abbott for the last 20 years? The company has raised its dividend payout for 39 straight years! Paying a modest, not high yield, dividend has nothing to do with your ability to grow; it’s simply a reflection of financial discipline and a commitment to treat shareholders as owners.

FINDING DIVIDEND STOCKS

To find companies that continue to increase earnings, and also dividends, requires some research — but it’s not too late to find them. Many growing companies are just embarking on a plan of increasing dividends as a way of distributing excess cash, instead of buying back their own stock.

Part of the reason that dividends are coming back in vogue is the fact that most dividends are taxed at a maximum rate of only 15 percent. That tax deal is likely to be a target in Congress after the election.

But the alternative use of corporate cash — stock buybacks — has a dismal track record. And even if tax laws change, dividend-payers will remain attractive because the payout can offset some of the downside risk in stocks and provide a regular income while you wait for stock prices to rise.

Rising dividends can also help you beat inflation, unlike the slightly higher, but fixed, returns of bonds.

If you want to learn more about dividend investing, read “The Little Book of Big Dividends” by Charles B. Carlson. And visit Carlson’s website: www.BigSafeDividends.com to find the stocks.

Keep in mind that dividend-paying stocks do carry market price risk and are not an alternative for “chicken money,” which can’t afford any risk of loss. But diversifying your investments to increase your yield can be a valuable way to increase your income and protect against inflation. — CNS

Terry Savage is a registered investment adviser and the author of the new book, “The New Savage Number: How Much Money Do You Really Need to Retire?”

Taxes & Your Retirement

By Jean Setzfand

This year, as the April 17 deadline for personal income tax filing draws closer, you should give some thought to minimizing your tax bill through your retirement planning.

It’s a complex topic that would require more than a few words to explain, but nationally-known tax expert Jordan Amin, a certified public accountant (CPA) and chair of the American Institute of CPAs’ Financial Literacy Commission, has a tip for three different groups of people: those who are 50+, still working and trying to save for retirement; those who have saved for years but now have to figure out the best way to crack open the various eggs in their nest; and those who are wealthy enough to leave a legacy.

For those who are still working, if your employer offers a tax-deferred savings plan like a 401(k) or 403(b) and they offer to match any part of your contributions to it, there’s just no excuse for not contributing to it.

Beyond that, Amin notes that people who are 50 or over are allowed to contribute even more money to their 401(k) and 403(b) plans. In 2012, that “catch-up contribution” limit is still $5,500.

His next lesson applies to people who are still working and saving, as well as to those who are now ready to tap their retirement funds. If you put all of your retirement money into your employer’s plan – thereby sheltering that income and the earnings on it from taxes until you withdraw it – you may actually end up paying more in taxes and management fees than you would if you spread that money around a little more.

Let’s say you make $80,000 a year, putting you in the 25 percent tax bracket. When you withdraw money from your tax-deferred accounts, like your 401(k), it’s treated as ordinary income, so you’ll pay 25 percent tax on it. But if you’ve put money into a taxable account at a brokerage firm, as long as you hold assets for at least a year, you’ll only pay the 15 percent capital-gains tax as you sell assets in that account.

Meanwhile, while you’re focusing on drawing down your taxable brokerage accounts, the money in your 401(k), 403(b) or IRA is still growing tax-free. Later, once you hit age 70 ½, you won’t have any choice – you will be required to start drawing down those accounts and paying taxes on the withdrawals.

If you can get by on the income from your taxable brokerage account until you’re 70 ½ – and delay claiming Social Security until you’re 70 – you will stand a much, much better chance of having enough money to last the rest of your life. That brings us to Amin’s final lesson, directed at those who are older, very wealthy and may have the luxury of leaving money to heirs. Think about whether you may want to pay taxes now to convert a traditional IRA (in which you invested pre-tax dollars) into a Roth IRA. Roths have no required minimum distributions, and neither you nor your heirs will pay taxes when you withdraw money from a Roth.

For people who are planning to use that money some day, it may not make sense to convert in a down market. With a conservative investment portfolio, it may take too long to recoup the money paid in taxes to do the conversion.

Jean C. Setzfand is Vice President of the Financial Security Team in the Education and Outreach group at AARP. She leads AARP’s educational and outreach efforts aimed at helping Americans achieve financial “peace of mind” in retirement.

Low-income Vermont Seniors Get Grant for Housing

More very low-income senior citizens in Vermont will have access to affordable supportive housing thanks to $4,885,200 in housing assistance announced recently by the U.S. Department of Housing and Urban Development (HUD). This grant will help Cathedral Square Corp., a non-profit organization, produce accessible housing, offer rental assistance and facilitate supportive services for the elderly.

The grant funding awarded under HUD’s Sections 202 and 811 Supportive Housing programs will kick start construction or major rehabilitation for more than 170 housing developments in 42 different states and Puerto Rico. In Vermont, more than 28 elderly households will be affordably housed with access to needed services.

“The Obama Administration is committed to helping our senior citizens find a decent, affordable place to live that is close to needed healthcare services and transportation,” said Michael McNamara, HUD Vermont Field Office Director. “Recent bipartisan changes to these two supportive housing programs will allow us to better serve some of our more vulnerable populations who would otherwise be struggling to find a safe and decent home of their own.”

Enacted early this year with strong bipartisan support, the Frank Melville Supportive Housing Investment Act and the Section 202 Supportive Housing for the Elderly Act provided needed enhancements and reforms to both programs. Nonprofit grant recipients will now receive federal assistance that is better leveraged and better connected to state and local health care investments, allowing greater numbers of vulnerable elderly and disabled individuals to access the housing they need even more quickly .

Fifty and Forgotten

How to find your next job when no one wants to hire you

By Tucker Mays and Bob Sloane

This article is written for you and the thousands of other executives across America who are age fifty or over and lost their jobs. The unemployment rate for this age group is now higher than that of any other and at the highest rate since the Depression. Why is it that America’s most skilled and experienced workers struggle to find work? Although they will never admit it, most recruiters and companies admit privately that they are significantly less interested in hiring executives when they reach the age of 50. There are many reasons for this bias but the most important are inflexible management style, difficulty reporting to a younger boss, high compensation needs, and lack of computer skills. In order to overcome these objections and maximize your experience, you need to follow a three-step plan.

Overcome Objections

• During interviews discuss how you modified your management approach to fit different challenges in different business cultures. Specifically, describe how you had to revise your style when working on special projects that required you to adjust to changing priorities, make quick decisions with limited information, produce results with fewer resources, and manage an ad hoc team of individuals who did not directly report to you.

• Cite examples from your career when you enabled a younger superior to succeed, grow and advance his or her career. During an interview, emphasize that you will manage what your boss wants to get done now, so that he or she will have more time to work on what should be done in the future. Also, convey that you are as committed to his or her success as well as your own.

• You will have a significant advantage over younger job candidates the more you are willing to accept less salary up front in exchange for a greater performance-based bonus. Companies prefer individuals who are willing to take some risk to prove themselves. For executives over 50, compensation flexibility can be a key factor in getting a job. A reduction of up to 20 percent from your previous salary is reasonable.

• As every aspect of business continues to be impacted by fast changing technology, it is important that you know the latest technologies that are specific to your managerial function, whether it be general management, sales, marketing, finance, operations or HR. To do this, it is advisable to attend industry or functional group training programs or conferences, and also to consult with trusted colleagues in your field.

Make Your Age an Asset

At age 50 or over, you have devewloped special abilities, highly valued by companies that offer significant advantages over less experienced younger executives.
• Problem Solving: Since you have faced more challenges and solved more problems, you can solve most problems faster than younger job-seeking competitors. This is a critical skill companies are in urgent need of in today’s fast paced world. Therefore, try to find examples where you quickly identified key drivers impacting performance, and developed solutions that achieved improved results in record time. Examples might be delays in new product introduction, late shipments, cost overruns, or declining quality control.

• People Management: By the time you reach age 50, you have discovered how to quickly and accurately assess who should stay and who should go, and how to make those who stay even better. When interviewing, give examples of people you managed who went on to successful careers, and others who struggled, but flourished when you changed their responsibilities to better match their abilities.

• Judgment: From who to fire and who to hire to where to cut and where to spend, you’re in a better position to make the right decisions than most who are younger than you and less experienced. You can further strengthen your candidacy by discussing decisions you made that others either avoided or doubted that were successful.

• Leadership: As few individuals are born leaders, this critical trait takes time to develop. Accordingly, most executives over 50 will possess greater leadership credentials than their younger counterparts. It is important during interviews to describe examples where you led cross functional teams, initiated new programs and projects, spearheaded a company’s shift in a new direction or motivated people to achieve record results.

Finally, job seeking executives over 50 must understand that the job search strategies which worked for them during their 30s and 40s are no longer as effective. They should not rely on recruiters, friends, and published job leads to find jobs in growing mid-to-large size companies.

Change Your Search Strategy

Executive recruiters now account for less than 10 percent of all job opportunities, and have a reluctance to recommend unemployed executives over 50 to their clients for the reasons previously addressed in this article. Therefore, you should spend no more than 10 percent of your time working with recruiters, and only engage with those you know, have worked with, or to whom you have been referred.

The competition is so intense that you should only respond to leads with job specifications that are close to a perfect fit with your skills and experience. Given the low probability of gaining a job via this route, spend no more than 5 percent of your time responding to published job opportunities. Network to the unpublished job leads, for which there is far less competition.

Larger companies usually have built in succession plans and hire from within nearly 90 percent of the time. In contrast, smaller companies usually hire executive talent from the outside as they grow. Further, there are 20 times as many companies in the U.S. with sales of under $ 100 million as there are above. They are less concerned with your age, highly value your experience, and make faster hiring decisions. Therefore, focus your search efforts on smaller companies.

In order to overcome the strong job market bias against hiring executives over 50, you must develop compelling arguments to counter job market concerns behind the bias, cite the key reasons why your age is an asset, and use different job search strategies in order to find you next job faster.

Tucker Mays and Bob Sloane are Principals of OptiMarket LLC, an executive job search coaching firm they co-founded in 2001 to help executives over 50 find their next job in the shortest time possible. Tucker and Bob have also co-authored the book “Fired at 50: How to Overcome the Greatest Executive Job Search Challenge.”

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