Many financially successful individuals begin retirement with the belief that their personal savings and holdings, coupled with company retirement packages and Social Security will enable them to retire comfortably. The cliché “ignorance is bliss” may apply in some situations but certainly not when it comes to retirement planning. Failing to accurately calculate what your income and expenses will be during retirement can keep you from enjoying what should be one of the most relaxing and best times of your life.Before you make any major decisions, it may be beneficial to review some of the common mistakes people make in retirement planning. Doing so can not only help you avoid such errors, but may motivate you to do some serious planning and saving before it is too late.Better Late?
When it comes to retirement planning, many think that it is better late than never. While you can always begin planning later in life, the options and opportunities available begin to dwindle as you get older. If you do start later, you will have a harder time recovering from any life events or economic situations that may occur. Remember, you can never start saving and planning for retirement too early.Company Benefits
Keep in mind that the retirement benefits your company offers may alone not be enough during retirement. People often misunderstand what their company benefits are and how they work. Make sure you understand and track your benefits so you will be able to make any necessary ongoing adjustments to your plan.The Social Security Trap
Social Security should not be viewed as a safety net for individuals who retire with little to no income and assets, especially given the current situation of Social Security. At most, the program should provide a small buffer to help financially when you no longer have a steady income. Play it safe and keep in mind that Social Security should only be a small part of your overall retirement plan.Medicare
While Medicare is often the main health insurance for older individuals, it will not be enough to cover all health care costs. The costs of Medicare increase often and any difference in cost will have to be made up in some form, whether directly out of your pocket or ultimately from the cost of any additional health insurance you obtain. Be sure to take this into consideration during your retirement planning.Perhaps one of the biggest mistakes people make is they seem to think they will need less money to live on during retirement. The cost of living does not decrease during retirement! While some individuals may be able to live on less during retirement, most can not. A number of things may attribute to this including rising health costs during retirement, leisure and entertainment costs, and travel expenses. In addition, individuals who may have had children later in life may be faced with college tuition costs. It is imperative that you closely (and realistically) analyze what your expenses will be during retirement so you can include them in your retirement plans. One of the best ways to achieve such an objective is to hire a financial analyst to help you plan your retirement. Doing so will ensure that you spend your golden years enjoying life to the fullest, not trying to make ends meet.

NEW YORK (Dow Jones)–With the stock market in the red again Friday 

following Thursday’s sharp decline, many investors seemed to be taking the 

week’s drop calmly. A few expressed worry but others bravely looked to wade 

deeper into the market. 

  Financial advisors around the country say that investors’ growing 

sophistication is helping clients remain stoic: They have already survived 

February’s downturn, and the concepts of asset allocation and long-term 

investing have been pounded into them. 

  That’s not to say that no one is nervous. 

  “They’re worried. They’re saying, ‘What’s happening with the subprime? Are 

the markets completely falling out of bed?’” said Arthur Black, a New York 

City wealth manager who has gotten about six calls from clients in the last 

week. “Markets like this give everyone enough of a scare to say ‘What’s 

happening here?’” 

  But with most major stock indexes up overall for the year, financial 

advisors say this week’s decline isn’t creating the kind of panic that it 

might have a decade ago. 

  “You don’t quite see what we used to see when the markets came apart. 

Investors seem to be more seasoned,” said Robert Weissenstein, managing 

director and chief investment officer for the Private Banking Americas unit of 

Credit Suisse Group (CS). “People do understand that markets can sell off 

without vaporizing entirely. There’s more of an ability to digest some of 

these moves.” 

  Craig Rappaport, Author: “Live Long Live Rich”a said that nowadays investors “see downdrafts in the market as an 

opportunity to buy things rather than to panic out.” 

  Indeed, many financial advisors reported that their clients were looking to 

buy into the market. Gene Foxworth, a Charleston, S.C. financial advisor, said 

an 81-year-old client called him about the drop. Although Foxworth thought the 

client had called out of worry, the man actually wanted to invest more money 

in stocks. 

  Bill Hilgedick, a financial advisor with Edward Jones in Eau Claire, Wis., 

said he is seeing the same reaction as some clients try to diversify by buying 

stock in sectors underrepresented in their portfolios. 

  “Yesterday was a busy day,” Hilgedick said Friday. “I was placing a lot of 

buy orders.” 

  For investors who engage in short-term trading, this week was rough, 

Rappaport said. “Do you know how to spell angst? Traders trying to enter and 

exit strategically are finding it not very doable in a market that’s 

collapsing,” he said. 

  Financial advisors were warning against bailing out altogether. David Tysk, 

a financial planner with Ameriprise Financial Inc. (AMP) in Bloomington, 

Minn., compared the markets to teenagers with a curfew: They won’t behave the 

way you want them to. 

  “We have to have a long-term strategy and methodology in place,” Tysk said. 

“We do people a big disservice by highlighting these big market swings. The 

markets are supposed to fluctuate. The markets are doing exactly what they’re 

supposed to be doing.” 

  The market’s loss, said Jerry Miccolis, a financial planner in Morristown, 

N.J., “was large in absolute terms…but in relative terms it was not 

dramatic.” On Thursday, “nearly everything went down. When you look at the 

whole market sliding, the last thing you want to do is liquidate.” 

  Many financial advisors want to keep their clients focused on the long haul. 

To that end, Foxworth said, he isn’t even reaching out to clients to head off 

their anxiety. 

  “We talk to people about asset allocation and long-term investing,” he said. 

“To pick up the phone and call people may send the wrong signal.” 

  Dick Bellmer, a financial planner at Deerfield Financial Advisors in 

Indianapolis, said a decline “doesn’t make anybody feel good.” He said he 

constantly reminds his clients of the importance of sticking to predetermined 

asset allocation, regardless of where the market moves. 

  He has reassured some clients that, despite this week’s drop, their 

portfolios are up overall for the year. “If people don’t panic, they’ll be 

better in the long run,” he said. 

  Adam E. Carlin, a financial advisor with Citigroup Inc.’s (C) Smith Barney 

in Coral Gables, Fla., received two calls since the market dropped - both from 

new clients. One, a doctor from New York, emailed Carlin shortly before the 

market decline to say that she wanted to discuss investing more aggressively. 

Out of concern that she might not have understood the risks, he emailed her 

back to say that he wanted to meet and talk this over. After the market 

dropped, he contacted her again, and she replied that maybe she had gotten a 

bit ahead of herself. 

  “Once you have had an opportunity to educate clients,” Carlin said, “you 

don’t get the panicked emails or phone calls.” 

Monthly Social Security and Supplemental Security Income benefits for more than 54 million Americans will increase 2.3 percent in 2008, the Social Security Administration announced today.

Social Security and Supplemental Security Income benefits increase automatically each year based on the rise in the Bureau of Labor Statistics’ Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), from the third quarter of the prior year to the corresponding period of the current year.  This year’s increase in the CPI-W was 2.3 percent.
 
The 2.3 percent Cost-of-Living Adjustment (COLA) will begin with benefits that nearly 50 million Social Security beneficiaries receive in January 2008.  Increased payments to more than 7 million Supplemental Security Income beneficiaries will begin on December 31.

Some other changes that take effect in January of each year are based on the increase in average wages.  Based on that increase, the maximum amount of earnings subject to the Social Security tax (taxable maximum) will increase to $102,000 from $97,500.  Of the estimated 164 million workers who will pay Social Security taxes in 2008, nearly 12 million will pay higher taxes as a result of the increase in the taxable maximum.

NEW YORK (Dow Jones)–A new client comes into your office. A 50-something 

man in the market for financial advice, he just sold his successful business 

for millions of dollars. Clearly, this guy knows what he’s doing. 

  Not necessarily. Assume the business was a heating and air-conditioning 

company, or a chain of car washes. A smart businessman doesn’t have to be 

well-versed in investment decisions, and a large amount of wealth doesn’t 

always translate to financial sophistication. 

  That basic tenet of assessing suitability may have more relevance in a world 

of baby boomers made newly wealthy by selling their businesses, selling their 

real estate, inheriting money or cashing out of their savings plans. (A 

Practice Management column, also published Wednesday, addresses how to serve 

clients with new wealth.) 

  From a compliance perspective, it’s essential for brokers and advisors to 

really know their customers - not just how much they have in the bank, but how 

they got it and what that means about their financial savvy. 

  “More people coming out of the workforce…  have just put away money every 

month in their 401(k)s and leave with $2 million to $3 million,” said Todd 

Taylor, managing director in charge of financial advisor recruitment and 

development at Morgan Stanley (MS). He added that those investors may have 

invested sums only in the thousands of dollars in the past. “This newfound 

wealth is a large account by any standard…  but sophistication may or may 

not be there.” 

  Although the Financial Industry Regulatory Authority’s suitability rule 

doesn’t name sophistication as a factor that must be considered when brokers 

recommend investments, it has a broad requirement that brokers “make 

reasonable efforts to obtain” information that may factor into what’s 

appropriate for a particular customer. 

  Suitability is always a regulatory concern, but it’s become an especially 

hot topic given regulators’ current emphasis on protecting seniors, retirees 

and those nearing retirement. A broker who misjudges a client’s sophistication 

and comfort level and therefore makes an unsuitable recommendation can find 

himself in big trouble. FINRA’s November disciplinary actions show that it 

barred one registered representative and fined and suspended another for 

making unsuitable recommendations. 

  “It’s easy for advisors to assume that because someone has a lot of money 

that they are more sophisticated,” said Craig Rappaport, author of “Live Long Live Rich “It’s also easy to 

assume those people are willing to take extra risk.” 

  Research released this spring by marketing and research consulting firm 

Harrison Group Inc. and American Express Publishing Corp., a division of 

American Express Co. (AXP), shows that wealth doesn’t necessarily correlate 

with investment experience. 

  More than 1,300 people with household discretionary incomes of at least 

$125,000, or incomes after mortgage and taxes, participated in the late 2006 

survey. 

  Almost 80% of respondents grew up middle class or below and nearly 70% have 

been wealthy for less than 15 years. About one-third run their own business 

and one-third run someone else’s business. 

  Sixteen percent of respondents’ wealth was earned through financial 

investments. 

  That’s why it’s critical to ask certain questions upon meeting a new client: 

“Have they invested in securities, mutual funds, different asset classes? How 

often? Were they the primary decision-makers? All these tests are designed to 

assess sophistication and suitability,” said Andres Vinelli, chief economist 

at FINRA. “Financial sophistication is very different from being a 

sophisticated person in general.” 

  Many brokerage firms include these types of questions as part of the basic 

information customers provide when they open accounts. 

  At Morgan Stanley, financial advisors are taught to dig deep into their 

clients’ investing experience as part of a “discovery process,” Taylor said. 

They don’t just find out how many years the client has been investing, but 

they gauge the depth of that experience: In the firm’s “investor style 

questionnaire”, financial advisors ask clients to say whether they agree or 

disagree with statements such as “investing intimidates me” or “I follow the 

stock market on a regular basis.” 

  Beyond that, Taylor said, FAs might ask about a client’s best and worst 

investments in the past, or their previous relationships with advisors. 

  “It’s very important they understand what the clients know and don’t know 

about investments,” Taylor said. “As products become more complex and clients’ 

needs become more complex, there are a lot more issues out there for an 

advisor to uncover…. It takes a more thoughtful approach.” 

  Not only will being thoughtful in considering clients’ sophistication help 

advisors build rapport, but it will also help keep them out of regulatory hot 

water. 

  “Sophistication and being wealthy are just not one concept,” Vinelli said. 

“Representatives should be attuned to that reality. (There are) pretty 

intelligent and sophisticated individuals who don’t have a clue how to 

evaluate products on the market.” 

H. Craig Rappaport, author of the retirement book, “Live Long, Live Rich,” 

writes: 

 It is surprising but yet investors keep coming back for more. 

 One year they enrich themselves with tainted research reports, WorldCom, 

Enron etc. The next time they make millions for themselves blowing up the 

financial markets at the expense of shareholders. The investment bankers are 

all multi-millionaires earning it by stuffing off balance sheet SIV’s with 

junk. 

  When will the investing public realize that the major wire houses are 

looking out for their own interests consistently at the expense of the 

accounts they manage. Do clients really think that they will pass up the next 

investment banking deal because they think it may hurt the clients who by it. 

Not a chance. 

  So while the bankers are sipping mint juleps on the beach in Hawaii, the 

secretaries, the janitors, the clerks are busy figuring out how much longer 

they will need to work before they can retire. 

Here’s what H. Craig Rappaport Author of “Live Long Live Rich”, writes: 

Most retail clients are holding steady but the reactions vary amongst 

different age groups. Younger investors are more apt to look at this as a 

buying opportunity learning the lessons from major sell-offs in the past. The 

older client, pre-retirement or in retirement are much more concerned. This 

group of retail investors are much more vulnerable. They are no longer working 

and therefore do not have the ability to replace lost principal with income. 

The older the retail client, the more nervous the client.

There’s theory and then there’s reality. In theory, would-be retirees and retirees need not alter their investment portfolios in the wake of the stock market’s recent gyrations. In reality, it’s not as easy as it seems — even if you have taken the trouble to get your asset allocation right. Emotions play a huge roll.

Consider, for example, the hypothetical portfolio of a would-be retiree who is seeking an 8% per year return from their nest egg. A person with designs on that kind of annual return might invest 19% of their money in large-cap equity, 7% midcap equity, 12% in small-cap equity, 26% in international equity, 13% in emerging equity, 9% in REITS, 5% in long-term government bonds, 7% in international government bonds and 2% in Treasury bills.

With that kind of portfolio, the projected value of a $1 million portfolio would be $1.4 million in five years.

But the long-range view smoothes out what could be some major turbulence: There’s a 66% chance that any one year’s return could be anywhere from up 21% to down 4.9%. And then there’s a 2.5% chance that that portfolio would fall more than 17.8% in any one year.

A portfolio with that make-up is now down roughly 15% since the market peak in October, causing not theoretically jitters, but real-time jitters.

Yes, we know that when investors have a long-term horizon, say 15 years, it’s unreasonable to judge investment performance through a three-month lens. That can be easier said than done, but there are countless examples of where having a long-term perspective is the best one of all.

“As trite and boring as it may sound, the best advice is to just stick with a prudent long-term plan and ignore the short-term noise,” said Rande Spiegelman of Charles Schwab.

Christine Fahlund of T. Rowe Price said investors need to hold tight.

“This is not the time to sell investments in the stock market. It may be the time to learn from your emotional experiences,” she said. “Perhaps this is more of a roller-coaster ride than you had bargained for. If so, once the market is back on its feet again you may wish to reallocate somewhat more to bonds and bond funds and somewhat less to stocks and stock funds.”

“However, you should not consider dipping below an allocation of about 40% equities, since retirement can be a very long time — three decades perhaps — and you will need growth to keep up with inflation.”

Drawing Your Blueprints

Of course, the tricky part to all of this is that you do need a plan, an investment policy statement. Yes, investing is, in some ways, a bit like building a house. You need an architect’s drawing and structural plans that a general contractor uses to build the finished product.

In other ways, however, investing is nothing at all like building a house. No general contractor would ever say there’s a 66% chance that the house will like a colonial and a 5% chance it might look like raised ranch.

But what tends to happen is that most people invest using their neighbor as their benchmark instead of taking the time and energy to create their own plan. With a plan in place, there’s a good chance you’ll have a portfolio that is properly diversified. And diversification, said Fahlund, “is critical to dampening the overall volatility of your portfolio under all market conditions.”

Besides having a plan, Fahlund suggests that those who might already be in retirement reduce their spending and withdrawals from investments wherever possible.

“It is “overspending” when the market is down that could result in your running out of money before the end of your retirement,” she said in an email. “Examine your current budget carefully and consider what you can “go without” for the time being.”

“This won’t be easy, but it may be necessary. It is one of the most effective tools available to you at this point in time in the history of the markets.”

As the markets creep closer to “bear” status, financial advisors see managing fear as their top priority.

Many financial advisors are telling nervous retail investors to sit tight and keep their emotions in check as they watched stock markets around the world sell off on Monday and early Tuesday, and with bears and bulls struggling this morning for the U.S. stock market. In some cases, new clients have canceled appointments due to nervousness about the market.

And it’s not just clients that need hand holding: experienced financial advisors are talking to their younger colleagues, trying to assure them that this, too, shall pass.

Some advisors are encouraging clients to take a defensive stance, moving some of their assets into cash or bonds to protect them from the market’s decline.

To be sure, many financial advisors and clients remain confident that the markets will bounce back eventually, continuing the upward trend that is a staple of the U.S. financial system. Some cite the increased focus on asset allocation since the 2001 technology bust as preventing nervousness from becoming outright panic.

But that doesn’t make things easier for the near-retiree watching his savings dwindle.

“The market fluctuations create a much higher level of anxiety because they no longer have a salary coming in,” said Craig Rappaport, a financial advisor with Janney Montgomery Scott in Radnor, Pa., who said he’s hearing more from his clients who are at or near retirement than from other age groups. “They tend to feel more vulnerable.”

Even clients who aren’t close to retirement are getting skittish. One broker at Citigroup Inc.’s (C) Smith Barney said clients who just put money into the markets are frustrated, and that some potential new clients have canceled appointments because of the market’s uncertainty.

Part of that anxiety stems from helplessness, Rappaport said: “This is a market that’s being pushed around by the big boys,” he said, noting that short-term maneuvers may work well for hedge funds, but not for retail investors. “When you look at markets in the past, it’s generally people who feel they need to do something that end up on the losing end of the trade.”

An advisor in the southeast U.S. at a major brokerage firm said advisors who reach out and are responsive to client concerns during market turmoil can pick up new clients, provided clients’ investment returns aren’t seriously lagging their benchmarks.

Brokers aren’t immune from fear, either. Veteran financial advisors who have seen the markets’ ups and downs over a decade or more are holding the hands of their junior colleagues, said one Merrill Lynch & Co. (MER) financial advisor.

“We’re telling the younger brokers not to panic because they haven’t gone through this,” he said.

Some financial advisors said they’ve seen the market’s decline coming for a while, and adjusted their clients’ portfolios accordingly.

David Kudla, a financial advisor in Grand Blanc, Mich., said his firm now has the highest levels of cash it has had in the last three-and-a-half years. The market reached a high on Oct. 9; he said his firm started to increase its cash position within a week.

William Supper, a certified financial planner at Massey, Quick & Co., a wealth management firm in Morristown, N.J., said he and his colleagues have also increased the cash portions of their clients’ portfolios to reduce volatility.

“Coming into this, we’re very defensively positioned,” Supper said.

In addition, Supper said he’s been shifting client portfolios toward long and short equity positions so they’ll be prepared for buying opportunities should they arise. Now Supper is trying to figure out whether the market is close to the bottom and whether buying makes sense yet.

Indeed, the concept of buying stocks on sale seems to be another message that financial advisors are trying to get their clients to absorb in the down market. Tom Orecchio, a principal with Greenbaum and Orecchio, a wealth management firm in Old Tappan, N.J., said he’s telling clients, “We’re going to buy it as it drops and sell as it goes up. That allows us to consistently and objectively buy low and sell high.”

The other key to quelling clients’ fears is to focus on asset allocation and to walk them through their portfolios to see if rebalancing would make sense.

“You need to have a big enough umbrella to keep dry when it’s raining like this,” said Joe Montgomery, a financial advisor with Wachovia Corp.’s (WB) Wachovia Securities in Williamsburg, Va. “We’ll revisit those (portfolios) and make sure they’re properly positioned to continue on in their happy retirements. If we’ve done a good job of explaining, they understand they’re in the right position.”

Others are looking on the bright side. One broker at RBC Dain Rauscher, a unit of Royal Bank of Canada (RY), reported that his office phone was ringing off the hook before the market opened Tuesday. Clients were anticipating “a 600-plus” point drop in the market, he said, “But right now, it’s only down 260.”