New Year’s Retirement Travel Resolutions

1/9/2015 AZ Republic by Dr. Harold Wong

Now that the holiday season is over, people are left with their New Year’s resolutions.  However, I challenge you to consider making some New Year’s resolutions regarding your travel dreams in retirement.

Enjoy those bucket list items now, while you are healthy enough to walk easily. For many, this means extensive travel, which you never had the time for while working. You can afford it by doing two things: increasing spendable income and decreasing travel expenses.

In today’s virtually zero bank interest world, increasing income can be a huge challenge. Your choices are to either risk your life savings in the stock market, hoping for continual market appreciation of your stocks, or go into bonds.

Warning: bonds will be the next big crash. If interest rates increase from today’s historical lows, bond values will decrease substantially. On June 17, 2013, “Effect of Higher Rates on Fixed Income Portfolios”, was a warning by the well-known brokerage firm Oppenheimer. A three percent increase in interest rates will drop the value of a 30-year Treasury bond by 42 percent; a two percent increase will cause a 31 percent drop; and only a one percent increase will cause an 18 percent drop. If you sell that bond before maturity, you will take a big loss.

Instead, consider a private pension, where the funds are not at risk in the stock market. These pensions are based on actuarial principles that offer a higher cash flow than most alternatives. If you are 70, deposit $200,000, and wait 5 years to take income, it’s often possible to get about $17-18,000 of annual income, each year for the rest of your life. This can fund a lot of travel, particularly when you mix one big foreign trip with two U.S. trips each year.

About three years ago, I met a couple, age 80s, from New Jersey that had been educators in the public school system. They retired in their mid-50s and had taken two cruises each year for 30 years. They had only saved about $80,000, but relied on generous publicly-funded teachers’ pensions and Social Security to fund their extensive travel plans. They estimated that they had spent just under $700,000 on these cruises, but that was their dream. They expected that their house would be the only thing the kids would inherit.

Here’s an interesting strategy for single guys who want to take almost free cruises. The marketing studies in the cruise industry show that older, single women are a significant part of their clientele. These women are either divorced or widowed. One of the major reasons they like going on a cruise is that they have organized activities, including shore excursions that fill the day. At night, they like having a great served dinner, drinks, and entertainment after the dinner. The only thing missing is having no one to dance with. That’s why affluent cruise lines have the Gentlemen Host Program, a placement agency operated through Compass Speakers and Entertainment, Inc. If you are unmarried, can carry a conversation, and are a decent dancer, your cruise trip is almost free. You host a dinner table of eight women and then rotate each dance with them. The cruise line rules also state: “No Hanky-Panky Allowed!” Remember, you are there to dance and not to play the role of Richard Gere in the movie “American Gigolo”. However, after a long day in the sun, drinks and a big dinner, the dancing typically only lasts two hours or less.

Free Seminars: on many topics, including “How Women and Couples Can Increase Income and Reduce Taxes”, “Secrets of the Roth and Multi-Generational IRAs”, and “Lessons from Warren Buffett”, will occur during the next 3-6 months, at venues in Mesa, Surprise, Cave Creek, and Tempe. Click on for each month’s seminar schedule.

Contact Dr. Wong at 480-706-0177 or For his archived research, click on

2015 New Year’s Health Resolution

By Dr. Harold Wong for 12/12/2014 AZ Republic

There are less than 3 weeks left before the end of 2014 and it’s an American tradition to think of New Year’s Resolutions. Common ones include: stop smoking; lose weight; get healthier.

I’m going to join a health club: This is great, but it’s a total waste of money if you don’t actually use it. The holiday season is the time when health clubs have their biggest and most profitable membership drives. Please resist the temptation to sign up for a year, 3 years, or even a 5-year membership, enticed by the lower annual cost for the longer memberships. Some unscrupulous health clubs oversell their memberships; then go bankrupt; and open up a few months later under a different corporate name. If they go bankrupt after 2 years and you paid upfront for 5 years, you’re out of luck.

Dr. Wong’s suggestion: Even if you visit a reputable and honest health club, realize that most people do NOT keep their New Year’s Resolution of working out. In January, February, and perhaps March, the classes are crammed and there’s a wait to use the machines. By April, only the hard-core regulars are using the facility. It’s better to join a health club that has a small initial fee to join and charges you monthly without a contract. If you stop working out in a few months, you have not lost much. Similarly, avoid the temptation to sign up for a 6 month or 12-month personal trainer contract.

Don’t let them charge your credit or debit card: Insist on paying upfront for a specific number of months instead of letting them ding your credit card or debit card for the monthly charge. There have been a number of nightmare situations, where the member canceled his membership and the club refuses. Then the club keeps charging the member’s card and even has a collection agency go after the member is he cancels the card. Over a decade ago, I visited a large health club chain. They wanted to charge my credit card. I refused and paid upfront by check for a trial 3-month membership.

Use a city-owned facility: There are a number of city-owned facilities, such as the Mesa Multigenerational Center or the Gilbert Freestone Recreation Center that offer workout facilities. Kiwanis Park in Tempe also has tennis courts and a large indoor heated pool. The normal daily admission cost is $4-6 and one can lower the cost with a monthly pass. For years, I trained my championship tennis teams at Kiwanis Park. Unlike a high-end country club, there was not $thousands of dollars upfront in an initiation fee and high monthly dues. When we played doubles for 2 hours, each guy would chip in $4-5.

Due to a number of major injuries, I can no longer play tennis. So, I use the Kiwanis Park indoor heated pool and occasionally the small workout facility that has exercise machines. The cost is either $4 per daily visit or $39 for a monthly pass. I find that the city-owned facilities are much more low-key than private health clubs. Industry studies show that when people are out of shape, there’s a huge reluctance to join a health club. This is because most women are intimidated by younger, thinner women wearing the latest fashions in the aerobics classes; and most men are intimidated by hugely muscled guys, known in the trade as “meatheads”. I find that at city-owned facilities, you mainly have an older crowd, where people are just trying to stay healthy and no one is competing with anyone else.

Conclusion: Your health is important, but spend wisely when using a facility to work out. Remember, what’s important is not the cost of the facility but how often you exercise. It’s you and not your wallet size that does the exercise.

Contact Dr. Wong at (480) 706-0177,, or . For his future seminars and previous articles, click on

Thoughts for the Day after Thanksgiving, 2014

11/28/2014 AZ Republic by Dr. Harold Wong

It’s the day after Thanksgiving, and much of America is involved in full-contact shopping on “Black Friday”, chasing big discounts on merchandise for Christmas gifts. This is a good time to reflect on what’s really important in life. Here are some thoughts:

  • Do you really need to spend lots of money during the Holiday Season?

If you spend $3-4,000, do most of the recipients of these gifts in your family really appreciate it? A different thought might be: If we save $2,000 per year for 5 years, we now have $10,000 and that’s enough to pay the down payment and closing costs on a $200,000 house. If you get a FHA loan, one only has to put 3.5 percent down, or $7,000, on a $200,000 house. If you lost your home to foreclosure during the real estate collapse, you typically have to wait 7 years before you are eligible to apply for a Fannie Mae or Freddie Mac (the 2 quasi-government entities that control the national mortgage rules). So, you might as well save up for the down payment on your next house. The family will be able to enjoy this house for years or even decades.

  • Do I really need to buy a new car every time I change cars?

Most people have no idea how much a car costs. It’s not unusual that people pay $35,000 for a new car but finance it with a loan. If the purchase price of the car is $35,000, your last car is given $5,000 trade-in value, and you are able to qualify for a 6 percent fixed, 72-month car loan. Your monthly payment, principal and interest, is $494.71 each month for the next 6 years. When you add insurance, license plate fees, gas, oil changes, maintenance, and parking fees, it’s not unusual that it adds another $5-6,000 of annual expense.

In 1997, I bought a 1987 Volvo 240 car that had 110,000 miles. When the motor mounts died in 2006, I had 255,000 miles on it. I paid $2,800 for it in 1997 and sold it for $300. My total net capital cost was $2,500, divided by 10 years, or $250 per year. My insurance was only $850 per year and the annual AZ license fee was only $50. I was able to buy used parts from the Volvo junk yard and I didn’t worry about getting more dents when I parked it. Even if there were substantial repairs, my total cost of owning the car for 6 years was perhaps $27,000 instead of $67,000 for the new $35,000 car. If you buy a new car every 6 years, the extra $40,000 cost for 10 new car purchases (from ages 24-84), could total as much as $400,000 more that you spend on cars, compared to a frugal Asian. Note: In 2007, Warren Buffett auctioned his own personal car for charity. It was an older Lincoln Town Car worth less than $10,000. In 2014, Buffett was ranked the 2nd wealthiest person in the annual Forbes 400 survey, and Buffett’s net worth was estimated to be $71.9 Billion as of 9/12/2014.

Summary: Every month, Americans are bombarded with thousands of ads, asking them to buy all sorts of stuff. The ads prey on people’s lack of self-esteem. If I don’t wear these designer clothes, drive a fancy car, or drink expensive liquor, I won’t be seen as successful, sexy, and in control of my life. In fact, rampant consumerism leads to living paycheck to paycheck; leasing cars instead of owning them; and entering retirement years without enough savings. Thanksgiving is a time to reflect and determine what’s really important in life. Is it buying whatever the latest fashion or fad is, or being in true financial control of your life?

Contact Dr. Harold Wong at (480) 706-0177,, or For his archived research or seminar schedule, click on


How to Sell Your Newspaper with No Capital Gains Tax

By Dr. Harold Wong for December, 2014 Publishers Auxiliary

You started your community newspaper 30-40 years ago with a dream. Against all odds, you competed with the large daily newspapers and carved out your local niche. However, none of your kids or grandkids wants to work the long hours that you do, where you are both the chief editor; sales manager; and even the weekend janitor. You got an offer to sell your newspaper and your spouse (who has worked by your side for decades) wants to spend more time with the grandkids. You are entering into serious negotiations with the buyer and then that little voice in your head says: “What are the tax and retirement planning implications of this sale?” This article will cover some of the major issues in this once-in-a-lifetime decision.

Case Study with Option 1: you (John and Mary Smith) have a firm offer to sell your community newspaper for $1,100,000. Your cost basis is $100,000 and so you face a $1,000,000 long-term capital gain. The long-term capital gains tax rate can be 20% if you have very high income ($457,600 or more for joint filing married or $406,750 or more for single filers in 2014). However, let’s assume that your income is lower and your combined federal and state rate for long-term capital gains is 20%. You would then have $900,000 left ($1,100,000 sales price less $200,000 of income tax).

Today, it’s very hard to earn much interest or dividend income. Over the last 6 years, 2% has been the average interest rate on a 10-year Treasury note or the average dividend yield for the stock market. After risking everything you have in your newspaper, you don’t want to take the risk of the stock market. You also understand that bond values will decrease sharply if interest rates increase in the future. So, you are concerned about putting your money in bonds. Yet, banks are not paying more than 0.5% on a CD, which would only be $4,500 of annual income. You decide to put all $900,000 in the bank until you have time to look at investment alternatives. You and your wife are both 70 and your combined Social Security income is $45,000. When we add the $4,500 of interest, total income is now $49,500. You never dreamed that your income from selling your newspaper for $1,100,000 would be so low.

Case Study with Option 2: Assume the facts are the same as Option 1, but you use the complex world of charitable planning to improve your situation. You transfer title of your newspaper to a certain kind of Charitable Remainder Trust (CRT). The CRT sells your newspaper for $1,100,000 and owes $0 capital gains tax. You decide to take a 5% payout from the trust, which starts at $55,000 per year and will pay out as long as one of you lives. If the CRT earns 7.82%, and pays you 5%, then it grows by 2.82% annually. You will receive 5% of whatever the CRT principal is. If the last spouse dies in 21.8 years, there will be a total of $1,625,323 of income to you.

Based on a complex calculation, you will also receive, in the year of the newspaper sale, $451,209 of charitable tax deduction. If you can’t use it all in the year of the sale, you are allowed to carry forward the deduction for as many as the next five years. The best way to use this deduction is to do a Roth IRA conversion of the $471,209 that you have saved up in your 401k and/or IRAs. By converting the full $471,209, which normally would create $471,209 of ordinary taxable income in the year of conversion, you now have $471,209 in the holy grail of tax planning, the Roth IRA. This means that there are no Required Minimum Distributions when you turn age 70.5, and there is no income tax at all on this money, no matter how much you earn. If you don’t spend it all by death, there is no taxation on this bucket of money during the lives of your kids and possibly even that of your grandkids. Note: you only have $20,000 taxable income from the Roth IRA conversion as you had $471,209 in your tax-deferred retirement accounts and the CRT tax deduction is $451,209.

What’s the downside to this type of planning? The CRT law says that that after the death of the last spouse the remainder of the CRT funds, but no less than 10% of the initial $1,100,000, would go to charities that you designate. In this example, the charity would receive the $2,015,599 in 21.8 years. But what about the kids and/or grandkids? You could use part of the CRT income, which starts at $55,000 in year 1, to purchase a life insurance policy that will result in $1-2 million death benefit (after the last spouse dies) and this could go to your heirs without any income tax. The life insurance policy would be held inside an irrevocable life insurance trust, or Wealth Replacement Trust, so that the $1-2 million death benefit is not counted as part of your taxable estate.

Summary: If you listen to Public Broadcasting TV or Radio programs, note that the sponsor is either a Charitable Trust or a Foundation. The strategy outlined above is how the super-wealthy, such as Warren Buffett can sell $billions of assets and not pay any capital gains tax. The same law also can apply to the owner of a community newspaper who wants to finally sell.

Author: You can contact Dr. Harold Wong at (480) 706-0177,, or


Social Security: Questions from the Readers

11/14/2014 AZ Republic by Dr. Harold Wong

This year, I wrote a 5-part series on Social Security issues, especially those that affect Baby Boomers. You can access all 5 parts, published: May 23, June 13, June 27, September 12, and September 26, 2012, by clicking on, which archives all of my AZ Republic articles for the past 7 years. I also gave the seminar “How to Maximize Social Security and Other Retirement Income” in June and September, 2014. Here are some of the commonly-asked questions from attendees at these seminars as well as questions from other readers:

  1. I am 55 and if $1,294 is the average monthly Social Security (SS) benefits of retired workers in 2014, how can I possibly pay my bills in retirement?

Suggestion: Only 5.2 percent of men and 11.4 percent of women waited until age 66 (considered full retirement age, FRA, for workers who were born between 1943-54). FRA age increases for younger workers, and is 67 for those born in 1960 or later. Only 1.2 percent of men and 2 percent of women waited until age 70. You should strongly consider working until age 70 so that you can collect the maximum SS benefits at 70.

You are 55 now and that will give you 15 years more to increase your life savings. If you can save $10,000 annually, and earn 5 percent, that will be an extra $226,575. It is not impossible to save an extra $10,000 annually. The action steps would be: working overtime if offered, adding a second job, and decreasing household expenses by 10 percent. Just like dieting, one can cut out 10 percent of the calories with a little effort whereas 20 percent would take minor surgery.

Your SS retirement benefits are based on the average of your 35 highest income years that  you paid SS taxes. By working longer and earning more money, you can increase your future SS check.

  1. I am a female, age 62, currently working, married to a husband age 62 who earns a good salary. I want to retire at age 66. Because I stayed home for 20 years to raise the kids, my estimated SS benefits at age 66 (when I reach FRA) will be only $800 per month. His annual SS benefits when he reaches age 66 are $27,272.73. Due to our genetic history and current health, he will probably only live to 85 but I will live until 95. What should we do?

Suggestion: When he reaches age 66, he can use the “file and suspend” strategy. He will continue working until age 70 to maximize his SS benefits, which will be 32 percent higher, or $36,000 annually. He will not collect SS when both of you are 66, but you at 66 can receive half of his SS benefits ($13,636.36 annually, which is more than the $9,600 you would have received based on your own earnings record).

Once he retires at age 70 he can take his $36,000 annual SS and you will continue to collect your $13,636.36. When he dies at age 85, you can collect only one SS check, whichever is the highest one. You will then receive his $36,000 of annual SS retirement benefits. The family would also have received your 4 years (from your age 66 to age 70) of $13,636.36 annual SS benefits or $54,545.45. He has protected you by maximizing his SS benefits, and any future cost-of-living adjustments will increase your $36,000 SS check.

Free Seminar: “How to Maximize Your Social Security and Other Retirement Income” is scheduled for Thursday November 20, 6:30-8:30 P.M. and Saturday November 22, 2014 from 10-12 noon, followed by a light lunch from 12-1 P.M. Please RSVP at (800) 955-1408. The location is Keller Williams University, 2077 E. Warner Road, Tempe, AZ 85284.

Contact Dr. Harold Wong at (480) 706-0177,, or

Secret Advanced Tax Strategies Part 2

10/24/2014 AZ Republic by Dr. Harold Wong

The previous article, “Secret Advanced Tax Strategies”, October 10, 2014 The AZ Republic, can be found at It covered two little known strategies: the Family or solo 401k and the Roth/Multi-Generational IRA. This article will handle some of the resulting questions in more detail. For those who missed the article, I will restate the basic scenario.

Situation #1: You are a self-employed individual (Schedule C unincorporated or with a corporation) who wants to save tax. You feel you are paying too much tax and want at least $17,500 of tax deductions. Solution: You can have a solo 401k, also known as the family 401k plan. You must have no non-family employees and so this plan is suitable for the one-person business (with or without his spouse working in the business). If you are age 50 or over, you can contribute the first $23,500 to the solo 401k and add the employer profit contribution, so that the total maximum contribution in 2014 is $56,500, if your profit is high enough.

Question Number 1: Can you still contribute to an IRA in addition to your solo 401k contribution? The answer is “Yes”.

Question Number 2: Is it difficult or expensive to set up a solo 401k? The answer is “No”. If you use a reasonable cost independent 401k administrator, the cost can be as low as $500 to set up and $500 of annual fees. There can be lower cost options where the provider of the 401k plan is a Wall Street firm, but then you are tied to their investment choices.

Question Number 3: What if you have a few non-family employees? Then, you have to have a normal 401k plan, where the cost to set it up and annual fees may be higher. You also will be subject to “non-discrimination” rules. This means that for permanent (in contrast to seasonal and temporary) employees, they must be allowed into the plan and any employer profit contribution must treat all employees (the owner and everyone else) relatively with equal treatment. This means that the profit contribution must be the same, adjusted for age and income.

Situation #2: You are a parent or grandparent who wants to leave a tax-free legacy to your younger spouse, kids or grandkids with the Roth/Multi-Generational IRA. A retired nurse, married, age 75 wanted to leave a legacy to her 2 grandsons, twins age 9, and the most tax-effective strategy is to combine the Multi-Generational IRA (MGIRA) with a Roth IRA conversion. We structured a Roth conversion of her $385,000 traditional IRA and paid the conversion tax with non-IRA funds. The 2 grandsons will each get slightly over $2 million of tax-free income over their lives. The multiplier or gear ratio is 10 to 1.

How do you Optimize Paying the Roth IRA Conversion Tax? By converting $385,000 from her traditional IRA to a Roth IRA, that will create $385,000 of taxable income. The law says you can convert all, none, or something in between of your traditional IRA or 401ks to a Roth IRA. When one looks at the tax brackets at the 25, 28, or 33 percent rates, they are very wide. If taxable income is between $73,800 and $148,850, the rate is 25%; between $148,850 and $226,850, the rate is 28%; and between $226,850 and $405,100, the rate is 33%. She decided she could handle converting over a 3-year period. The upside to doing a Roth/MGIRA is that up to 3 generations can have tax-free income, no matter how much her $385,000 earns.

Free Seminars: “Secret Advanced Tax Strategies” will be held Sat. 10/25/2014 from 10-12 noon and Tues. 10/28/2014 from 6:30-8:30 P.M. The location is Keller Williams University, 2077 E. Warner Road, Suite 110, Tempe, AZ 85284. To RSVP, call (800) 955-1408 or email

Contact Dr. Wong at (480) 706-0177,, or For his archived articles, click on

Secret Advanced Tax Strategies

10/10/2014 AZ Republic by Dr. Harold Wong

This article will cover a number of tax strategies that are little known to most taxpayers who do not have access to very expensive tax CPA’s and tax attorneys who serve the wealthy. I will give case studies where a particular strategy might be used. Future articles will go into more depth about the various strategies and consider other case studies.

Situation #1: You are a self-employed individual (Schedule C unincorporated or with a corporation) who wants to save tax. You feel you are paying too much taxes and want at least $17,500 of tax deductions. You are not an employee with a company that offers a 401k, but need more tax deductions than the $5,500 annual contribution ($6,500 if age 50 or above) limit for an IRA. Solution: You can have a solo 401k, also known as the family 401k plan. The key is that you are a sole proprietor or operate the business with your spouse and have NO non-family employees. Assume that your spouse works in the business with you and is under age 50. She can contribute $17,500 annually to the solo 401k plan and this is called employee salary deferral. In other words, if your spouse was paid $17,500, she could put ALL of $17,500 into the solo 401k plan. If she was paid $12,000, she could put a maximum of $12,000 into the solo 401k plan.

Assume you are age 50 or older and now you could also contribute a maximum $23,000 employee salary deferral to the solo 401k plan. If you have reasonably high profits, you would want more tax deductions. You can also use the employer contribution (remember you are both the employee and the employer), which is calculated as 20 percent of your net earnings if your are a sole proprietor and 25% if your business is a corporation. There are some technical details involving the calculations, but the concept is what we cover in this article. If you are age 50 or older by December 31st of 2014, you can save up to $56,500 in the solo 401k plan. This is a combination of the employee salary deferral and the employer contribution.

Situation #2: You are a parent or grandparent who wants to leave a tax-free legacy to your younger spouse, kids or grandkids. A retired nurse from CA came into my office almost 3 years ago. She had 2 government pensions and Social Security and so had much more income than she could spend. Her daughter was a high-income MD and her son had died. There were 2 grandsons, twins age 9. We structured a Roth conversion of the $385,000 that she had saved and paid the conversion tax. She does not need the Required Minimum Distribution income and this will not be required once we do the Roth IRA conversion. The 2 grandsons will each get slightly over $2 million of tax-free income over their lives. Once she dies at an assumed age 91, each grandson will get $7,000 annually at age 25; $11,000 at age 35; $17,000 at age 45; $27,000 at age 55; $43,000 at age 65, $69,000 at age 75; and $90,000 at age 80. I realize that not everyone has $385,000 in an IRA, but imagine the legacy left if you only started with $100,000 and it became up to $1 million of tax-free income. The multiplier is still 10 to 1.

Free Seminar: “Secret Advanced Tax Strategies” will be given on Sat. October 25, 2014, from 10-12 noon, followed by a light lunch at 12-1 P.M.; and also on Tues. October 28, 2014, from 6:30-8:30 P.M. preceded by a light supper from 6-6:30 P.M. Call (800) 955-1408 or email to RSVP. The location is at Keller Williams University, 2077 E. Warner Road, #110, Tempe, AZ 85284.

Contact Dr. Wong at (480) 706-0177,, or For his archived articles, click on

How to Optimize Social Security & Other Retirement Income: Part 2

9/26/2014 AZ Republic by Dr. Harold Wong

The previous article, “How to Optimize Social Security & Other Retirement Income”, was published 9/12/2014 in The AZ Republic and can be accessed on We will avoid using cost-of-living increases in SS benefits to simplify the article.

Case Study 1: Joe and Mary are both age 66, which is the Full Retirement Age (FRA) for Social Security (SS). Joe’s Primary Insurance Amount (PIA) is $2,500 per month of SS benefits and Mary’s is $1,000 per month. They both will retire at age 66. Let’s look at their financial assets and other sources of income. Suppose Joe had $500,000 in his 401k and all was in high growth stocks that paid no dividends. He also had $200,000 in a stock mutual fund and he received $4,000 of annual dividends. Mary had $100,000 of savings in a 457 tax-deferred plan at her state hospital and earned 1 percent in the conservative option, or $1,000 of annual income. Their total annual investment income is $5,000.

Their total gross annual income would be $42,000 of SS plus $5,000 of investment income, or $47,000 of total income. Assume that their annual federal and state income tax is $2,000 and so they have $45,000 of after-tax income. Also assume that this equals what they spend at age 66.

Now let’s look at the effect of a 4 percent annual inflation, which most retired couples don’t factor in. In 20 years, it will require $98,600 paper dollars to buy what $45,000 buys today. Their SS income would still be $3,500 per month (again, ignoring any cost-of-living increases in their SS benefits to simplify the analysis). Because their total after-tax income will be $45,000 and their shortfall is $53,600.

Options based on 9/5/2014 rates and $500,000 Investment: When looking up Phoenix, AZ CD rates in, the 3 giant national banks pay 0.15% to 0.35% on a 5-year CD. Joe could get $750 to $1,750 annual interest. If Joe loans to the U.S. Federal government, a 10-year Treasury Note pays 2.46% and a 30-year Treasury bond pays 3.24%. Joe could earn either $12,300 or $16,200 of annual interest. Joe next looks at the Bloomberg US Corporate Bond Index, and the effective yield is 2.95%, or $14,750 of interest. However, if interest rates rise sharply, he would lose much of his principal if he had to sell the Treasuries or corporate bonds before maturity.  A 2012 Forbes article said that 3.26% was the average dividend yield for about 6 decades leading up to 2013 for stocks in the S&P 500 index. That would be $16,300 of annual dividends. However, Joe does not want to risk much of his life savings in the stock market, having experienced 2 crashes in the last 14 years. None of these options solves the $53,600 shortfall.

Private Pension Option: Joe, at age 66, deposited $500,000 in a private pension plan and waited until age 75 to take his lifetime income. He decides to use the joint income option and $53,317 of annual income will be paid as long as at least one of the two spouses is alive. Now, they have covered almost the entire projected $53,600 annual deficit at age 86 and don’t worry about running out of money. Assuming there is not a stock market crash, they still have Joe’s $200,000 in a stock mutual fund and Mary’s $100,000 in her 457 plan. They are comfortable that $300,000 of liquid financial assets will cover any future expenses, such as buying a new car every 10 years.

Free “How to Maximize Your Social Security & Other Retirement Income Seminar”: Sat. 9/27/14, 10-12 noon followed by light lunch 12-1 P.M. at Keller Williams University, 2077 E. Warner Road, Tempe, AZ 85284. Please RSVP at (800) 955-1408 or

Contact Dr. Harold Wong at (480) 706-0177,, or

How to Optimize Social Security & Other Retirement Income

9/12/2014 AZ Republic by Dr. Harold Wong

I recently flew to Kansas City and met Mason Morasch and one of the IPG actuaries, who shared some of their strategies on Social Security optimization. This article will use some of their research. We will avoid using cost-of-living increases in SS benefits to simplify the case studies.

Case Study 1: Joe and Mary are both age 66, which is the Full Retirement Age (FRA) for Social Security (SS). Joe’s Primary Insurance Amount (PIA) is $2,500 per month of SS benefits and Mary’s is $1,000 per month. If Joe waits until age 70, he will get 8 percent more for every year he waits past age 66, his FRA. This would make his SS benefit $3,300 per month at age 70.

Spousal Benefit: Mary is entitled to either her SS benefits or half of her husband’s, whichever is greater if she waits until she reaches FRA. If she takes SS earlier, she gets less. Joe will use the “file and suspend” strategy in order to get this spousal benefit for Mary. She can receive $1,250 per month, which is half of Joe’s $2,500 per month SS benefit at his FRA of 66. Because Joe is not claiming his SS benefits at age 66, he will receive the maximum he is entitled to, or $3,300 per month at age 70.

Another benefit for Mary is that her own SS benefits, the $1,000 per month at age 66, based on her work history, will continue to grow by the 8 percent per year factor from age 66 to age 70. This is because she has filed a restricted claim for only her spousal benefits. At age 70, she can claim based on her own work record and switch to a possibly higher benefit. With her $1,000 per month SS benefit at age 66 growing at 8 percent for each year she waits past age 66 until age 70, she would be entitled to $1,320 per month age 70.

At age 70, her $1,320 per month is greater than the half of Joe’s, or $1,250 per month she took at age 66. Note: Spousal benefits do not earn Delayed Retirement Credits after the spouse reaches Full Retirement Age (FRA). So, she would switch to her $1,320 monthly SS benefit when she reaches age 70. When Joe eventually dies, Mary is entitled to her widow SS benefit. If Joe died at age 70, Mary would take his full $3,300 of SS benefits.

Assume that they do not know about the “file and suspend” or spousal benefit strategy and they both retire at age 66. In addition to their $3,500 of monthly SS, assume that their $800,000 of life savings only gives them $5,000 of investment income. Their total gross income will be $47,000 and assume their after-tax income is $45,000 and they spend it all.

Now let’s look at the effect of a 4 percent annual inflation, which most retired couples don’t factor in. In 20 years, it will require $98,600 paper dollars to buy what $45,000 buys today. Their SS income would still be $3,500 per month (again, ignoring any cost-of-living increases in their SS benefits to simplify the analysis). Because their total after-tax income will be $45,000 and their shortfall is $53,600.

Summary: By waiting until age 70, they will get $4,550 of monthly SS instead of $3,500 at age 66 (because they don’t understand the spousal benefits strategy). The next article will cover strategies to optimize SS and the cash flow from your life savings to achieve lifetime retirement income.

Free Social Security Workshops: Thurs. 9/25/14, 6:30-8:30 P.M. with light supper 6-6:30 P.M.; and Sat. 9/27/14, 10-12 noon followed by light lunch 12-1 P.M. at Keller Williams University, 2077 E. Warner Road, Tempe, AZ 85284. Please RSVP at (800) 955-1408 or

Contact Dr. Harold Wong at (480) 706-0177,, or

Customer Service Can Make or Break a Business

8/22/2014 AZ Republic by Dr. Harold Wong

Over the past year, I’ve done a lot of traveling and noticed how various businesses either show great, average, or poor customer service. Now that we have the internet and social media, deficiencies in a business can be seen by the whole world. Let me list some examples that I have noticed during the past year or so.

During July and August, 2013, I traveled to N. Dakota to research the Bakken Oil Boom. I gave 12 seminars, including two each at the Minot and Williston Libraries and three at the Bakken Oil Service Expo at the ND State Fairgrounds in Minot. At the Minot library, they put notices of my free seminars in their monthly calendar. In addition, they created bookmarks that contained information of these two seminars at the front desk, where people check out their books. These were great advertising pieces, as people would take them and use them. The Williston Library did put up flyers, but did not do all that the Minot Library did. Partly because of the difference in the marketing effort, the two seminars at the Minot Public Library were full, but almost no one came to the Williston Library seminars.

In early November, 2013, I was flown by a large financial company to attend a financial conference at a famous hotel in Key Biscayne, Florida. This is an extremely expensive area, where individual houses can sell for $20 million. The hotel chain has an international reputation for tremendous service. I was shocked to find that at least four people at the concierge desk did not know much about major tourist attractions. When I asked about the nearby Aquarium and Killer Whale show, they had never attended. If I had been the owner of this Florida hotel, I would have insisted that everyone at the concierge desk attend each of the 5-10 major tourist attractions at least once, even if the hotel had to pay their admission ticket. When guests pay $400-600 plus a night for a room, they expect more. Thank goodness I was not paying for the hotel stay.

Finally, I want to mention what happened to a close friend Debbie in the Tempe, AZ area. She had been shopping at Costco at 1445 W. Elliot Road and had purchased $300 plus of groceries on a Sunday in July, 2014. Her battery died and she was stuck. It was over 100 degrees and the butter was melting. Costco sells batteries, but the normal policy is to NOT install them. However, Hugo Manriqe Morales, one of the service technicians, rolled the battery a long way to her car and did install the battery. When I found out about this, she wrote a thank you card and I slipped a $20 bill inside. I delivered it to the manager Josh Wozniak. A day later, I got a phone call from Hugo stating that company policy does not allow him to receive any cash. So, I stopped by and thanked him personally; he gave me back the $20; but kept her thank you card. You imagine that Debbie will become a lifelong customer and tell lots of people about this “WOW” customer service.

Conclusion: A greatly under-estimated part of the success or failure of any business depends on how knowledgeable and motivated the employees are. Great customer service makes you stand out; the public enjoys the experience; they buy more and come back. Or, if it’s a library, they come more often and vote for your next bond issue request. Customer service studies find that if someone is happy, they may tell 3 friends; but if really unhappy, they tell 27 others. Unhappy customers can’t wait to tell others about bad service.

Contact Dr. Harold Wong at (480) 706-0177;, or

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