There are many points to argue about what is right and wrong when it comes to Social Security and other age based entitled programs. But one point I think we can all agree on without beating the point to death is that Social Security is in serious trouble as we currently use it.

I am not interested in placing blame or running through all the statistical data why it won’t last. Simply put, we borrow from the future to pay for the present but sooner or later the future shows up. Anyone that borrowed against their homes in the last few years knows all to well how that statement rings true.

But what will Obama, McCain or other politicians going to do about it?  How about get real!

According to the American Academy of Actuaries, raising the retirement age to 70 will cut the projected Social Security deficit in half. The statistics back up this age as a base age to use to start benefits with incremental increases built in. The current system increases the social security age one month at a time to age 67 but that is not enough.

The fact of the matter is that people are living longer. In 1935 the retirement age was 65 and you could expect to collect for 12 years. Now that number is closer to 19 years. That’s the type of inflation we can live with, “age inflation”. But that puts pressure on the social programs geared to help seniors with their expenses including Medicare.

According to the National Bureau of Economics the retirement age that is more realistic is closer to 73-74. That might be pushing it a bit and probably impossible to get through politically. The American Academy of Actuaries concludes that long after all the baby boomers are gone the demographics tell us that social security will only cover 75% of its costs. Women will be affected even more since they live longer than men.

But will this be a blow to current generations regarding their expectations for retirement? The answer is no, at least not for those that have given it any thought. Many baby boomers have simply not saved enough for retirement and a large percentage of them do expect to earn some type of income through work during their retirement years.

Financial advisors are also not optimistic about their client’s chances of retiring at the current young age of 65 and having their money last. Inflation and modest investment returns over the last decade have pushed an even greater number of workers into that work longer, save more demographic that will come to dominate those tapping age based social programs.

Raise the retirement age and acknowledge the simple fact that were living longer and we need to make some adjustments to age based entitlement programs.

To the North American Securities Administrators Association (NASAA), there are plenty of modern-day Willie Suttons eager to go “where the money is.” Today, “the money” is largely held by seniors. Hence, regulators say, seniors are the targets of unscrupulous salespeople armed not with pistols, but with professional designations that exaggerate their competence or their concern for seniors’ well-being.

Now some of these individuals are being sought out not by potential clients, but by federal regulators, including the SEC and FINRA. These regulators are making it clear that advisors who use the word “senior” or various synonyms to transact business unethically are squarely in their sights. These individuals are “among [regulators'] top targets,” says Tracy DeWald, general counsel at Securities America, a broker-dealer based in Omaha, Neb. “People age 60 and over are the biggest source of regulatory complaints.”

Targets

Indeed, seniors are targets for all types of unscrupulous vendors. In the financial world, many of those engaged in unethical practices—or merely failing to make adequate disclosures—hold designations that include the words “senior,” “elderly” or “retirement.” contrary to the unethical practices, the designations indicate that the holders are experts in serving the financial needs of senior citizens.

The burgeoning controversy has prompted some reputable firms to take action to avoid being tarred by the same brush. These firms have been limiting the ways their people may use some “senior” designations when doing business. According to NASAA, some product salespeople using “senior” designations typically invite senior citizens to seminars where a free lunch is served along with a presentation on investments. Either at the seminar or through follow-up contacts, some advisors ultimately sell unsuitable investments to some of the attendees.

In April, NASAA introduced a model rule on the use of senior- specific certifications and professional designations. This rule, which prohibits the misleading use of designations that include words like “senior” and “retiree,” has already been adopted by the state of Washington. At press time, New Hampshire was set to adopt the rule and other states are likely to follow suit. A report issued last year by NASAA, FINRA and the SEC lists the popular Certified Senior Advisor (CSA) designation among those it considers misleading or confusing.

That’s not to say that the mere use of the word “senior” will automatically spur regulatory scrutiny. In its model rule, NASAA leaves room for certain designations to be recognized. “Regulators are drawing a distinction between designations that are earned and those that are bought like prizes in a Cracker Jack box,” DeWald says.

What distinguishes a real designation from a specious one? “An authentic designation requires you to pass a difficult test,” DeWald explains.

In addition, DeWald adds, “there are continuing education requirements and you can be kicked out if you violate the rules. On the other hand, there are some designations that you can get by writing a check and spending a couple of hours online. Some are just made up by the person using it.”

NASAA, FINRA and the SEC are by no means the first to recognize the potential abuses of professional designations, especially when it comes to seniors. Some states, including Massachusetts and Missouri, have filed complaints or cease-and-desist orders against people for giving inappropriate investment advice to the elderly while using the “senior specialist” title. Underlying these charges is the idea that certain designations imply specialized knowledge or training, lending credibility to salespeople.

Forbidden Credentials

Some broker-dealers have effectively banned reps from publishing senior-related credentials. Genworth Financial, for example, prohibits its employees and agents from using the CSA designation (the most common senior designation) on their business cards or in their marketing materials.

“We have a similar policy,” says DeWald of Securities America. “In fact, we have lists of which designations are acceptable in published materials and which aren’t. None of the ’senior’ or ‘elder’ designations are on the accepted list. Some of our reps have these designations, which they can mention to clients in conversation. They can’t put the letters behind their names to promote themselves.”

Comparable cautions are in effect at major brokerage firms, says Sean Walters, deputy executive director at the Investment Management Consultants Association (IMCA), which confers the Certified Investment Management Analyst (CIMA) designation. “We work mainly with full-service wirehouses,” he says. “They’re paying a lot of attention to designations, including those aimed at seniors, and deciding which ones should be approved for use.”

Designations are also under scrutiny in the fee-only universe. “At NAPFA, we looked at senior specialist designations,” says Tom Orecchio of Greenbaum and Orecchio, a wealth management firm in Old Tappan, N.J., and chair of NAPFA’s board of directors. “The vast majority were not worth anything, we felt. They don’t require much studying or continuing education. There are too many credentials around; the last thing we need is more clutter,” he says. The one exception, Orecchio notes, is the Chartered Advisor for Senior Living (CASL). “It’s offered by the American College and [courses for it are] taught like courses for the CLU and ChFC.”

9,500 Strong

Of all the senior-oriented designations, the CSA is the only one mentioned specifically by states, including Nebraska, when warning seniors to check the credentials of so-called senior specialists. Several of the individuals identified in state regulatory actions hold a CSA.

The CSA designation is conferred by the Society of Certified Senior Advisors (SCSA), which bills itself as the world’s largest membership organization for professionals seeking to improve their skills in working with seniors. More than 9,500 advisors now hold a CSA designation.

SCSA executives are quick to defend their organization. “We’re aware of regulators’ concerns that certain professional designations may be misperceived by the public,” compliance specialist Bill Kaluza says. “That’s why SCSA requires each CSA to provide a written disclaimer to clients and potential clients.” This statement, while asserting that designees have taken steps to bolster their knowledge of seniors’ financial needs, includes notification that “the CSA designation alone does not imply any expertise in financial, health or social matters.”

Of course, whether all 9,500-plus CSA designees are actually making this disclaimer to every potential client they approach is difficult to determine. Kaluza says SCSA makes an effort to police its designees. “CSAs themselves are often our most reliable reporters about CSAs who do not comply with these rules,” he says.

What’s more, Kaluza claims that when a member of the public contacts the SCSA to inquire about a particular CSA, the organization investigates to see whether the CSA in question actually provided the disclaimer. “To date, we’ve had very little indication that CSAs are not using the statement,” Kaluza says.

By Donald Jay Korn
August 1, 2008

WASHINGTON — U.S. inflation soared to a 17-year-high annual rate in July, a government report showed, led by gains in food, energy, airline fares and apparel.
With energy and commodity prices on the retreat this month and the U.S. dollar strengthening, the report is unlikely to spook Federal Reserve policymakers into raising rates anytime soon as the economy struggles with rising unemployment and soft consumer spending.
Still, a surprising rise in core inflation that excludes food and energy last month will keep officials on edge about the possibility that food and energy prices will become more firmly entrenched in the economy.
The consumer price index rose 0.8% in July, the Labor Department said Thursday. That came on the heels of June’s 1.1% rise, which was the second largest June 1982.
Excluding food and energy, the CPI advanced 0.3% for a second-straight month.
Wall Street economists had expected only a 0.4% rise in the headline and 0.2% core increase, according to a Dow Jones Newswires survey.
Unrounded, the CPI rose 0.818% last month. The core CPI advanced 0.327% unrounded.
Consumer prices jumped 5.6% on a year-over-year basis, the highest rate since January 1991. The core CPI grew a more modest 2.5% compared to July 2007, though that’s still well above the Fed’s long-term goal of 1.5% to 2%. Over the past three months, core inflation rose at a 3.5% annual rate.
Though Fed officials said in a policy statement last week that inflation remains a “significant” concern, they are likely to look past the July data. The Fed is generally expected to keep official interest rates steady into next year, though the rise in core inflation, if repeated in coming months, could put rate hikes later this year back into play.
Many of the forces boosting prices in recent months — particularly high energy and commodity prices and the weaker U.S. dollar — have reversed since mid-July.
In a Dow Jones Newswires interview Wednesday, Minneapolis Fed President Gary Stern said even though the U.S. is “probably…in for a few more sizable increases” in overall prices measures, “assuming we don’t get a resurgence of energy prices, we will see over time a diminution of headline inflation, for sure.”
“As that occurs, I think we’ll also see some diminution of the core,” said Stern, who is considered one of the most vigilant inflation fighters on the Fed.
Energy prices swelled 4% last month, according to Thursday’s report. Gasoline prices spiked 4.1%, and natural gas prices rose 7.4%. Food and beverage prices rose 0.9%.
Medical care prices, meanwhile, increased a modest 0.1%.
But other core items posted sharp gains, a sign that higher headline inflation may have started seeping through the rest of the economy.
Clothing prices, for instance, rose 1.2% compared to June, a 10-year high. Transportation prices soared 1.7% on the month as airline fares swelled 1.3%, reflecting the rise in fuel prices. New vehicle prices advanced a modest 0.2%, reflecting falling demand.
Housing, which accounts for 40% of the CPI index, was up 0.6%. Rent increased 0.3%. Owners’ equivalent rent advanced 0.1%. However lodging away from home rose 0.7%, while home fuel and utilities posted sharp gains.
Services prices rose 0.5%.
In a separate report, the Labor Department said the average weekly earnings of U.S. workers, adjusted for inflation, fell 0.8% in July, suggesting incomes aren’t keeping pace with prices.
That, in turn, could further damp consumer spending which appeared weak in July, according to a retail sales report released Wednesday.
-By Brian Blackstone; Dow Jones Newswires;

WASHINGTON — The prospect of higher taxes on long-term capital gains and dividends may spur a selloff of stocks and other assets by the end of this year, according to wealth-management advisors.

Investors and business owners are on high alert because of a proposal by Sen. Barack Obama, D-Ill., the presumed Democratic presidential nominee, to hike capital gains and dividend tax rates for many investors by between five and 13 percentage points.

Some advisors are telling clients to consider taking gains soon, because tax rates could change next year, particularly if Democrats win the White House and hold on to their congressional majorities.

“For the foreseeable future, you’re not going to get a better chance to move out of appreciated positions, from a tax perspective,” said Hank Alden, an advisor at Everest International Group.

Investment advisors caution that taxes alone should not be the overriding factor in investment decisions and decisions to buy or sell should be made as part of an overall strategy related to one’s portfolio.

But for many investors who have stocks or other holdings that they would otherwise sell in the next several years, the window for doing so at preferential tax rates may be closing.

Obama wants to bump the long-term capital gains and dividend rates up from their current level of 15% to at least 20%, and possibly as high as 28%.

The higher rates would apply only to individuals with income in excess of $200,000 or more, or couples earning more than $250,000.

Jason Furman, economic director for the Obama campaign, said that even for those making more than that amount, “we believe a rate much closer to 20% would be feasible.” That is based on campaign projections that assume that other Obama proposals would also be enacted.

Obama’s opponent, GOP nominee-designate Sen. John McCain, R-Ariz., favors keeping the capital gains and dividend rates at 15% for all investors, regardless of income level.

Screening for “Insiders” Business owners in particular may accelerate plans to sell their firms because of a looming capital gains increase, wealth advisors said.

“A number of family businesses have asked us the question, if we sold later than 2008, how much would my business have to appreciate just to break even,” or to realize as much profit as they would if they sold in 2008, said Jeff Paravano, a partner at the law firm of Baker Hostetler.

“When they see the spreadsheet, and the additional tax, a number of them have decided to sell this year,” Paravano said.

Some investors are even trying to turn a looming tax increase to their advantage by betting that business owners will sell before the tax hike. Investment advisor Robert Willens said some investors are “screening” for companies where founders or their descendants own a large share of the company stock.

Since those “insiders” are likely to have a low basis, they will be more motivated to avoid the tax hit by selling the business before the higher rate kicks in, he said.

“If investors believe a company will be sold at a premium, they may buy in the hope of reaping gains,” said Willens.

Dividend Rate Hike

Companies that pay dividends and their shareholders also are feeling pressure to act ahead of any tax hike.

Some companies may accelerate their fourth-quarter dividend payment from December 2008 from January 2009, according to Paravano.

In anticipation of a higher tax rate on dividends, investors who hold income-producing stock may want to shift to stock that doesn’t pay dividends and roll that into a tax-preferred savings vehicle such as an individual retirement account. That way the entire investment could appreciate without being taxed until the IRA is cashed out.

But they will be limited by annual contribution limits to IRAs, set at $5,000 for 2008, with an additional $1,000 for individuals over 50.

Uncertainty about how quickly Congress might move to raise taxes, and when higher rates will actually take effect, adds to the urgency. While recent GOP-led Congresses have typically made tax changes prospective from the date a bill is signed into law, that has not always been the practice, according to wealth advisors and economists.

Under current law, the 15% rate on capital gains and dividends is in effect until the end of 2010. But many observers expect Congress to act next year to fix the estate tax. Facing budgetary pressures, lawmakers may move at the same time to hike capital gains, dividend and other tax rates that were cut during President George W. Bush’s first term.

Economic Impacts

Rep. Richard Neal, D-Mass., said lawmakers will weigh carefully the effect of tax increases on an economy already burdened by high energy prices and credit woes. “We don’t want to do anything that would slow a recovery. But the deficit is a very stubborn fact,” Neal said in an interview.

Economists disagree over the broad economic impacts of an increase in the capital gains and dividend rates. Stephen Entin, president and executive director of the Institute for Research on the Economics of Taxation, has argued that a hike in the capital gains rate to 25% could damp the gross domestic product by as much as 6% over the long term.

But Furman of the Obama campaign said there is evidence that measured increases in tax rates that help reduce the deficit, as Obama is proposing, will not have a sustained negative effect on the economy.

Furman also said other Obama proposals will encourage savings and investment, such as an enhanced saver’s credit for lower-income earners.

“What investors should look at is what’s going to happen to overall economic policy. This is a change in economic strategy to emphasize fiscal responsibility in a way that we haven’t seen,” said Furman.

By Martin Vaughan
Of DOW JONES NEWSWIRES

NEW YORK — Your dividend check is probably in the mail.

While the number of companies slashing or eliminating dividends has increased due to crises in the housing, mortgage and credit markets, a great many others continue these quarterly payouts, and some are even raising them.

Dividend-paying stocks remain a safe and attractive holding for investors seeking relief from the seemingly interminable onslaught of negative economic news. For elderly investors on a fixed income, dividends provide an essential stream of steady income — regardless of the vicissitudes of equity markets.

“A company with a long and consistent history of raising annual dividends is the best defense against a weak economy,” said William Schultz, chief investment officer at McQueen, Ball & Associates Inc., in Bethlehem, Pa. “A solid, dividend-paying policy reflects a financially healthy company that is able to grow its earnings in any and all market environments.”

Howard Kornblue, who once ran a mutual fund for Pilgrim America that focused solely on dividend-paying stocks, also believes such securities will serve beleaguered investors very well in today’s jittery environment.

“We sought out companies that not only raised their dividends annually, but also had strong balance sheets, no significant long-term debt and were engaged in businesses with solid outlooks,” he said.

Scott Schluederberg, a portfolio manager at Hardesty Capital Management, thinks the current environment for dividends is “fantastic,” as long as one holds a reasonably diversified portfolio of dividend-paying stocks.

Look around and you will see a wide array of companies boosting their dividends. Stocks as disparate as Rohm & Haas Co. (ROH), State Street Corp. (STT), Coca-Cola Co. (KO) and Target Corp. (TGT) have all recently hiked these payouts.

Dividend increases come from a broad array of industries, even in these troubled times.

Schultz especially likes two sectors with a plethora of dividend-paying firms: pharmaceuticals and consumer staples.

“There are a substantial number of blue-chip companies in these areas — including Procter & Gamble (PG), Johnson & Johnson (JNJ) and 3M (MMM) — which have rewarded their shareholders with uninterrupted annual dividend increases for almost five decades,” he said. “It all has to do with their ability to generate consistently growing earnings.”

In one of his investment strategies, Schluederberg keeps a basket of stocks called “Trophy Dividend Growers,” comprising blue-chips which pay out a very comfortable portion of their earnings (30% to 50%) as dividends.

“This gives them a good cushion — they can still pay dividends even in the event of an earnings shortfall,” he said. “We also consider earnings expectations. If the payout ratio starts going above, say, 70% of earnings, then we become concerned and consider exiting the position. We want to make sure the dividend is safe.”

In this strategy portfolio, the collective dividend yield is a very robust 5.2% (versus 2.2% for the overall market). Typically, the yield of this strategy is between 3.5% and 4.25%. “Dividends don’t fluctuate the way stock price does,” Schluederberg noted.

His “trophy dividend” growers include Anheuser-Busch Cos. (BUD). “We bought that stock in the upper $40s when it yielded close to 3%,” he said. “Its value was fully realized when InBev acquired it for $70.”

The best dividend-paying industries, Kornblue asserts, are companies engaged in utilities, essential consumer products, health care, pharmaceuticals, energy, food and beverages. “The managements of these companies are eager to maintain their dividends because they know many of their shareholders invest in them primarily for the dividend yield,” he noted.

But some companies can no longer afford the luxury of handing out dividends.

S&P recently reported that 97 publicly-traded companies (of the 7,000 it tracks) cut their dividend in the second quarter, versus just 18 in the year-ago period. This was the largest figure since the second quarter of 1990, when 108 companies reduced their dividend payouts. Moreover, companies posting dividend increases amounted to 455, a 16% drop from the year-ago period.

Kornblue, now senior portfolio manager at Alpha Fiduciary Generational Wealth Management in Scottsdale, Ariz., thinks dividends will become scarcer as the economy continues to falter. As such, to play it safe, he suggests that dividend-seekers completely avoid stocks in a few distressed industries, particularly financial services, auto makers and home building.

Although the phenomenon of high-profile financial services companies — notably Citigroup Inc. (C), Wachovia Corp. (WB) and Washington Mutual Inc. (WM) — reducing or eliminating dividends has grabbed headlines, the scenario in the overall sector isn’t all that dire.

In fact, according to S&P, for the first half of the year, 7.9% of financial issues shaved their dividends (versus 2.9% for non-financials.) More telling, 20.9% of financial stocks actually hiked their dividends. Still, the losses incurred by the unfortunate shareholders of those financial firms that slashed payouts have been enormous — on the order of $13 billion, S&P estimates.

As for financial services stocks that continue to pay dividends, investors should be extremely cautious. Schultz cites US Bancorp (USB), which has faithfully raised its dividend 36 consecutive years, an impressive stretch. “Given the turmoil in the banking industry, we are waiting to see what they do in the fourth quarter,” Schultz noted.

Kornblue also thinks things will get worse for the financial sector, citing the deepening credit crisis, slowing economy and the ever-unfolding mortgage meltdown. Many financial stocks still paying a dividend carry unsustainably high yields, he warns, strongly suggesting dividend cuts are inevitable.

“There’s a lot of uncertainty here, especially among mid-sized banks,” he said. “More shoes may drop as we learn more about the full extent of their exposure to toxic mortgages.”

But not all financials are bad, Schluederberg insists, especially those companies that have diversified operations, have avoided risky acquisitions, or have too much exposure to mortgages. For example, he likes JP Morgan Chase & Co. (JPM), which just posted better-than-expected second-quarter results.

“They are well-positioned to survive the current crisis,” he said. “In fact, they served as the backstop for the Federal Reserve’s Bear Stearns rescue. JPMorgan shares have sold off recently, but I think they can sustain their dividend.”

While some investors crave a high dividend yield, this can sometimes be a misleading concept. A steep dividend yield may simply mean that the stock price has fallen too far, but the company is still dutifully paying its dividend. This often equates to an unsustainable situation, because the company may have weakening internal fundamentals and likely will have to cut or abolish the dividend.

“A high dividend yield does not necessarily mean that the company is healthy and fast-growing, although it depends on each individual case,” Schultz said.

“As investors, we are more interested at the rate of growth of the dividend, not the absolute dividend figure itself.”

Indeed, some industries like utilities and big pharma tend to have high dividend yields, but they are hardly “high-growth” industries.

To avoid high-dividend yield traps, Schluederberg looks at future earnings estimates. “If a company is paying a $1 annual dividend and their earnings are forecast to be $1.05, then that dividend is in jeopardy,” he explained.

For more information on investing for income visit www.livelongliverich.com and don’t forget to sign up for the free newsletter!

By Palash R. Ghosh
A Dow Jones Newswires Column

Interest rates have dropped and it has caused many investors to search for higher income producing investments and is leading many into more complex fixed income products. Not all that appears to be safe is, and those that have read about the credit issues plaguing Wall Street know all to well the negative ramifications misunderstood investments can have on one’s financial present and future.

But we can improve our situations, not by taking on more risk but perhaps understanding the risk in what we own and are contemplating investing in. I would like to go over two simple but yet important concepts in bond investing that many, even savvy stock buyers do not fully understand and therefore under appreciate their importance. It is a bond’s yield to call and yield to maturity. 

Lets start with a simple CD. (Certificate of Deposit) CD’s are time deposits and you agree to invest your money for a certain period of time at a certain interest rate and at the end of that period, at maturity, you receive your money back plus interest earned.

Bonds of all types are available and work in a similar way. You place your money with a government entity or company and receive interest for that period of time and at the end you receive your principal back. There are many types of risks associated with bond investing from credit risk to interest rate risk just to name two but I want to focus on just two parts of the decision on whether a bond is right for you, first Yield to Maturity.

Yield-To-Maturity

When you purchase a bond, the price you pay may be more or less than the maturity value. The values of bonds will fluctuate and on the date of purchase, it could be trading above the maturity or par value, which is called a premium bond, or below it which is called a discount bond. The premium or discount you pay effects the overall return on the investment.

If you paid $950 for a $1000 bond, you paid a discount and the appreciation from $950 to the maturity value of $1000 plus the interest earned needs to be taken into account when evaluating the overall return on the bond. You not only earned the interest, but made $50.

The same holds true for a premium bond. If you paid $1050 for a $1000 bond, you paid a premium. The difference between what you paid over the maturity value would need to be subtracted to find out your overall return. In this case you earned interest but lost $50 on the investment.

When evaluating a bond you may want to invest in, you do not need to figure all this out. Your advisor or company you deal with will be able to tell you the yield to maturity. If a discount bond had a yield to maturity of 6%, and a premium bond had a yield to maturity of 6.1%, all other factors remaining equal, then the premium bond would be a better buy. The total return was better even though I paid more for it.

So it’s not just the interest rate the bond pays, it is also the price you are able to purchase it at that makes a difference.

Yield to Call

The yield to call is determined in the same way as the yield to maturity except the call date is used instead of the maturity date. Most bonds today have call provision which means the issuing organization has the right to redeem, call away (give your money back) earlier than the stated maturity date. They will most likely do this if they can turn around and borrow at a lower rate than they are paying you. Just like you might refinance your home mortgage at a lower rate.

The effects of a discount or premium paid are magnified since the gain or loss, in this case of $50.00 is compressed over a shorter period. Making $50.00 over a shorter period of time is a good thing, losing the $50.00 premium over a shorter period of time is a bad thing and hurts your overall total return.

The interest rate you receive may increase the chances of a call. If a bond has a high interest rate and the current rates are much less, the bond has a greater risk of being called away and therefore a premium bond holds more risks under this environment.

Fortunately, the yield to call just like the yield to maturity is readily available to you from your advisor. When investing in bonds, the price you pay can have a dramatic effect on your return. The higher the yield to maturity on a premium bond does not equate to a better investment if the chances of a call are higher.

Knowledge is king in bond land, don’t be lead by the nose, know what you are buying and understand the risks first, reaching for a higher yield and ignoring the risks could result is a major loss of principal. On Wall Street, there is no free lunch.

For more information on bond investing, please log onto www.livelongliverich.com and don’t forget to sign up for the free newsletter.

Well, perhaps not new but for many unfamiliar. There are CD’s that are available that enable investors to capture higher interest rates than just buying a plain vanilla CD and at a time when rates are down, these structures can prove to be a best of breed when it comes to income and safety.

C.D.’s are time deposits, i.e. you agree to put your funds on deposit with a bank for a stated period of time, during which your funds earn interest at an agreed upon rate. In general, the longer you are willing to leave your money in a C.D., the higher the rate of interest you will receive.

C.D.’s purchased directly from banks are secured by FDIC insurance in amounts up to $100,000 per investor, 250,000 for retirement plans. They typically pay a stated interest rate until maturity. An investor wishing to withdrawal the deposit before maturity will usually be subject to a penalty.

Many securities firms also offer C.D.’s in the form of brokered C.D.’s. They are similar to C.D. s issued directly by banks, in that they carry FDIC insurance of $100,000 per investor and are available in a variety of maturities. They differ because they can be bought and sold prior to maturity which makes them more liquid. The price will fluctuate and could be more or less than what you paid or the maturity value.

Another benefit to brokered C.D.’s is that they usually include a “survivor’s option” which is very important to consider. Although restrictions on this provision may exist, it usually provides for redemption of the C.D. at the maturity value upon the death of the owner, even if this happens well before maturity. This can be an important estate planning tool especially for an older individual who wishes to capture the higher rates associated with longer term C.D.’s but not tie up the money for his/her heirs in their estate. Most of my older clients love this structure and I do too.

Step Up C.D.’s

Step-up CDs feature interest rates that increase or step up to a pre-determined level on a specific time schedule as they approach maturity. The interest rate on these CDs is usually fixed for a period of time, which is followed by a step up to another fixed rate. These steps may occur more than once before a CD reaches maturity.

Let’s look at an example:

Consider a 10 year CD. The first two years it pays a 4 percent interest rate. The next two a five percent interest rate, the next two a six percent interest rate and so on.

Years 1 and 2  4%
Years 3 and 4  5%
Years 5 and 6  6%
Years 7 and 8  7%
Years 9 and 10 8%

This structure usually pays a higher rate that on a short term security and steps up at a moderate rate as the CD moves towards maturity. The downside is that most of these issues are callable on the date of the first step-up. At that point if the bank does not want to pay the higher stepped-up rate it can redeem the bond. It still remains however an attractive structure for those looking for income.

As you can see, CD’s have various structures that offer a higher income stream while still retaining the FDIC insurance and the safety factor many investors seek in their investments. The next time you look to invest, check out the rates on Step-Up and Brokered CD’s. The rates are usually competitive and the safety factor many seek.

For more informations log onto www.livelongliverich.com and don’t forget to sign up for the free newsletter.

The prevailing sentiment among financial planners for several decades now has been that inflation will run at normal levels over time and that investment returns will outpace the erosion of buying power caused by inflation.

But for those at or near retirement, what was supposed to occur has not. Investment returns over the last decade for the S&P have been just over 3 percent. Inflation for real people is 6 percent year over year. Even those that have planned and saved diligently over that period did not plan for such low returns or such high inflation. To be sure the issues facing seniors today are decidedly more complex.

The commonly accepted norms may play out from generation to generation, but today’s retirees unfortunately have to deal with the reality that many will not have enough income generation to last through their investment lives.

This generation can count on Social Security but for 2008, social security payments rose 2.3 percent. Let’s see how far that goes when your air conditioning bill arrives. That sinking feeling many will feel is the realization that they are woefuly under prepared even though they saved and invested like they were supposed to do.

Fact: Americans 65 and older represent the fastest growing group seeking bankruptcy protection.

Fact: In the last 15 years, among households 65 and older, the average amount of credit card debt more than doubled.

Fact: Median amount of mortgage debt for households 55 and older rose 63% in the last 15 years.

Fact: Debt is at an all time high and savings is at an all time low.

Unfortunately, in some cases, hard decisions will have to be made. Will I eat? or sleep well.  Outliving your money is not an option.

So what can you do to help extend the income producing life of your assets? There are several things you can do, basic things that can help. Together, they will add up in your favor.

1) Instead of building debt for fear of liquidating assets, begin a systematic withdrawal from your non-income producing mutual funds. I would rather see you keep the high interest off the books which will eat you alive over time. Your returns through investments may not offset the high cost of that debt.

2) If you have individual stock investments, make sure they pay a dividend so you can receive some type of return and income stream while you wait out a bear market.

3) Use tax-efficient withdrawal strategies from your accounts. Make sure you think of the tax consequenses of your trading activitity. Should that be purchased in my IRA or personal account? Since my tax bracket is low this year, would it be wise to take a larger withdrawal from my IRA instead of the minumum?

4) Ladder your fixed income investments. Invest some in short-term and some in longer-term and some in between. Spreading your investment maturities may increase your income stream.

5) Look into guaranteed lifetime income producing annuities. The annuities of today are not as restrictive or as expensive as those in the past and it may help you sleep at night. Don’t listen to what others say, examine the benefits and costs for yourself and decide if it is right for you and your family.

Every retiree needs to take a hard look at their assets and understand the risks their asset allocation may have on their ncome stream later in life. This is not the time to put your head in the sand. Educate yourself and seek help if you need it. If you examine your options now instead of waitng, it could be the difference between living the retirement you dreamed of, or living in your son-in-laws basement.

For more information about how to create retirement income and easy to use strategies and links to useful information please visit www.livelongliverich.com.

BOSTON– (BUSINESS WIRE) — Unexpected health care costs and inflation are top concerns for pre-retirees and retirees, according to a retirement survey recently commissioned by MFS Investment Management® (MFS®). In line with these concerns, pre-retirees expect to work on average a full decade longer than those already in retirement, with nearly half expecting to work early in retirement and one in three working throughout retirement to bolster their savings.

“Due to the many challenges and concerns facing today’s pre-retirees, they are being forced to reassess what retirement means — working longer and working into retirement,” said William Finnegan, Senior Vice President and Director of Global Retail Marketing for MFS. “We see the changing definition of retirement as a tremendous opportunity for financial advisors to engage their clients about retirement income planning.”

Pre-retirees and retirees alike view unexpected health care expenses and inflation in general as top concerns regarding retirement savings, with more pre-retirees viewing each with greater concern than retirees — 70% to 60% for health care expenses and 64% to 50% for inflation, respectively.

“Inflation concerns — be it outliving ones’ savings, unexpected health costs or lost purchasing power — are clearly on the minds of today’s pre-retirees,” said Finnegan. “We recommend advisors and their clients develop a retirement policy statement, just as they would an investment policy, tailored to the needs and risk tolerance of their clients, which can serve as the basis for a plan designed to help a client’s nest egg continue to grow - keeping pace with inflation while generating the income necessary to meet the challenges of the rising costs of everyday expenses.”

Pre-retirees are redefining retirement. According to the survey, existing retirees retired at an average age of 58, with 40% relying on their pension as the primary source of income. Today’s pre-retirees are approaching retirement differently, fully expecting to work on average a full ten years (age 68) later than current retirees, with roughly the same number relying on pensions (23%) as on workplace retirement plans (25%). While approximately one-quarter (24%) of today’s retirees continue to work or worked early in retirement, nearly half (47%) of pre-retirees expect to continue to work in the early phase of retirement. Of those surveyed, 32% of pre-retirees plan to work throughout their entire retirement as well. That figure drops to one in ten for retirees.

“Baby boomers are going to redefine retirement, and financial advisors need to deepen their involvement in the planning process,” Finnegan added. “With typically low savings rates for the average American and greater potential longevity, combined with the above-cited concerns over inflation, pre-retirees will be living and working longer than previous generations. We are challenged as an industry to develop investment products and strategies to help clients manage their financial picture in a redefined retirement phase.”

Nearly half (46%) of pre-retirees and more than one-quarter (28%) of retirees surveyed reported that neither they nor their advisor have developed a formal retirement income plan, representing a tremendous opportunity for financial advisors. Survey results show that once a conversation about retirement income planning took place, both pre-retirees and retirees took action:

• Half changed investment allocations (53% pre-retirees, 52% retirees);
• One-third (32%) of pre-retirees increased their savings;
• About three in ten consolidated assets to one advisor (27% pre-retirees, 30% retirees).

“Once pre-retirees have engaged an advisor regarding retirement income, many take action,” concluded Finnegan. “In the coming decades, today’s pre-retirees will redefine what it means to be ‘retired’ and extending the planning conversation well into their golden years may benefit them and provide market opportunities for advisors and planners.”

The MFS investor survey was conducted in September 2007, with responses from 204 pre-retirees and 229 retirees, between the age of 55 and 75, who were either working full-time or retired, used a paid financial advisor and reported at least $100,000 in investable assets (excluding retirement and real estate). Similarly, the MFS advisor survey included responses from 206 financial advisors who identified themselves as financial advisors, brokers, investment managers, certified financial planner or wealth managers in September and October 2007. Richard Day Research, Inc., an independent research firm not affiliated with MFS, conducted both surveys and did not identify MFS as the study sponsor.
MFS manages $200 billion in assets on behalf of more than 5 million individual and institutional investors worldwide as of December 31, 2007. The company traces its origins to 1924 and the creation of America’s first mutual fund.