What Should Women Do Financially in 2016?

1/6/2016 AZ Republic by Dr. Harold Wong

The year 2015 ended in America with a fizzle and not a boom. The stock market was about even compared to the end of 2014; economic growth was tepid; the unemployment rate dropped but wage increases were small. Oil prices dropped to 11-year lows and consumers were happy for $2/gallon gas prices.

However, the most important thing to most women and their families is: “What’s my income and can I buy what I need or want? Unfortunately, the answer is a distinct “No” for the last 15 years. Some recent statistics can be found in a December, 11, 2015 article by Meteor Blades. In October, 2015, median family income (adjusted for inflation) increased to $56,771, a 5.3 percent increase over October, 2014. “We have now recaptured all of the income losses that have occurred since Jun, 2009, when the great recession ended, and the October, 2015 median is nearly the same as the median that existed when the great recession began in December 2007. The October 2015 median is now only 1.2 percent lower than the median of $57,372 in January, 2000, the beginning of our statistical series.”

The middle class has definitely shrunk. Since 1970, the middle class has gone from 62% of the nation’s income to just 43%. The upper class went from a 29% share to 49%. The lower class went from a 10% share to 9%.  From 1983 to 2013, the median wealth of the middle class increased only 2% to $98,100. The wealth of upper class families doubled to $650,100. Lower-income Americans saw their wealth drop 18% to $9,500.

If you just work a normal job with normal income, you will not get ahead. You will have to do something significantly different than most of your friends and neighbors. This might include starting a side business and reducing taxes.

When I gave a 1-day seminar in the S.F. Bay area, back in 1980, the average tax savings from a side business was $5,000. If one’s net income, after all business expenses, is $12,000, here’s the effect on your retirement. Assume that you started at age 40 and continue until 70, the extra $17,000 per year, if you could earn 4%, would become $991,581. If you did this for 20 years, you would still have an extra $526,476. The only way most people are willing to work the extra hours, in addition to their full-time job, is if you have a passion for this business. It could be your prime hobby. For example, I know the wife of a guy who started a side business doing wedding photography, and earns $35,000 gross, or $25,000 after all business expenses. It allows her to deduct all her photography equipment, computer, trips, and 75% of the expense of her vehicle.

It also may require you to invest differently that you ever have. Jack Bogle is “projecting 2.0-3.0% bond yields over the next decade … and 4.0% stock yields. A 50/50 balance of stocks and bonds would likely yield around 3.5% over the next 10 years. When you factor in the costs associated with index funds, inflation, and taxes, you are actually looking at real returns of nominal to zero.” Source: Vanguard Founder John Bogle Projects ‘Nominal To Zero’ Real Returns Over the Next Decade”, by Wayne Duggan, 6/9/2015 finance.yahoo.com. You might have to leave Wall Street investments and do something different, such as lending to professional house fix and flippers at 7-9% interest.

Free Seminars: On Weds. 1/13/2016, “How Women, Widows and Couples Can Increase Income & Reduce Taxes” will be given from 3:30-5:30 pm, followed by supper, at the Golden Corral, 1868 N. Power Road, Mesa, AZ, 85205. On Fri. 1/15/2016, same location, “Secrets of the Roth & Multi-Generational IRAs” will be given from 11:15 am-1:15 pm, followed by lunch from 1:15-2:15 pm. Please RSVP at (800) 955-1408.

Contact Dr. Wong at (480) 706-0177 or haroldwong1@yahoo.com. For his archived research, click on www.DrWongInvestorGuide.com.

Common-Sense Ways to Maximizing Social Security & Other Retirement Income

January 8, 2016 AZ Republic by Dr. Harold Wong

For decades, many have underestimated the crucial importance of maximizing your Social Security and other retirement income. In 2014, the average Social Security (SS) retirement benefit was $1,294 per month. “Among elderly SS beneficiaries, 52 percent of married couples and 74 percent of unmarried persons receive 50 percent or more of their income from SS.” Source: “How Social Security Strategies Affect Your Retirement”, by Dr. Harold Wong, published 5/23/2014 in The AZ Republic.

Example: if you are an older Baby Boomer, your Full Retirement Age (FRA) is 66 and suppose your SS benefit is $2,000/month. If you took SS at age 62, you’re hit with a 25 percent penalty and your SS benefit is $1,500/month. If you wait until age 70 to maximize your SS benefit, you get 32 percent more, or $2,640/month. Only 5.2% of men and 11.4% off women waited until age 66. Only 1.2% of men and 2% of women waited until age 70.

In today’s world of money, you are looking at 2% returns from intermediate bonds or 10-year Treasury notes and 3% returns from 30-year Treasury bonds. Let’s look at SS differently and consider it to be one of our investment asset classes. For you to receive $1,500/month, you would have had to save $720,000 if you earned 2.5% interest. To earn $2,000/month, your savings would have to be $960,000; to earn $2,640/month, your savings would have to be $1,267,200. In addition, SS benefits historically do receive a modest cost of living increase (COL), even though 2016 will be the 3rd year out of the last 6 where there was zero COL.

By waiting 4 years from age 62 to 66 to take your SS benefits, it’s like you saved an extra $240,000. If you wait 8 years until age 70 to take your SS benefits, it’s like you saved an extra $547,200. Even if you believe that you can earn a net (after mutual funds and brokerage fees) of 5% annually in the stock market, you would need to save about $54,650/year for 8 years to accumulate an extra $547,200. Given that the U.S. average savings rate was 5.50% in November, 2015, you would need total earnings of $9,949,091 during the 8-year period from age 62 to 70 to save an extra $547,200 (if there were no earnings at all). We assume that very few readers earn $1,243,636 annually.

A private pension plan is mathematically one of the most efficient ways to increase your retirement income. Example: If you want to take SS at age 62 and receive $1,500/month, how much would a 62-year-old male have to deposit so that he would have an extra $1,140 monthly ($2,640 at age 70 vs. $1,500 at age 62) at age 70.? He would have to deposit $150,000 and let it grow for 8 years. At age 70, he could receive $1,140/month every year from age 70 until death. Note that $150,000 is only 27.41% of the extra $547,200 of savings required in the previous example, if earning 2.5% annually, to generate this extra income. Even better, this private pension income is guaranteed to never go down for the rest of your life. For many, it’s possible to save

Conclusion: Almost everyone is better off waiting until age 70 to take SS benefits and to rely on a private pension instead of just the bank, bonds, and stock market dividends to fund your retirement income. Most could save $150,000 after a lifetime of work but many cannot save $547,200.

Free Seminars at Desert Foothills Library: On Sat. 1/16/2016, 10:30 am-12:30 pm, “How to Maximize Your Social Security & Other Retirement Income” will be given. On Weds. 1/20/2016, 2-4 pm, “Common-Sense Financial Strategies” will be given. Both are at 38443 N. Schoolhouse Road, Cave Creek, AZ 85331. Please RSVP at (800) 955-1408.

Contact Dr. Wong for a consultation at (480) 706-0177 or haroldwong1@yahoo.com. For his archived research, click on www.DrWongInvestorGuide.com.

Proposed Social Security Restrictions Require Better Retirement Planning

11/4/2015 AZ Republic by Dr. Harold Wong

Hidden in the proposed U.S. Budget Bill are some provisions that can reduce the “file and suspend” and “restricted application” strategies. These strategies, estimated to be used by only 100,000 Social Security recipients, allowed married couples to get up to an extra $50-60,000 of total Social Security retirement benefits. Source: “What Congress Just Did to Social Security”, by Luke Delorme, 10-30-15 www.ValueWalk.com.

These advanced claiming strategies had the higher-income spouse, upon reaching full retirement age (typically age 66 for older Baby Boomers) to file for Social Security (SS) benefits but not take them immediately. This allowed him to get 32 percent more by waiting until age 70 instead of age 66. However, his spouse would, upon turning her full retirement age, would claim half of his benefit when he turns 66.

By restricting her claim to half of his SS benefit, her own SS (based on her earnings record) could continue to increase until age 70 when she might switch to her own SS benefits. The couple considered it to be “free money”, when she got half of his SS benefits (the spousal provision) for the 4 years, because it did not prevent both of them from maximizing their own SS benefits at age 70. Once this proposed U.S. Budget Bill becomes law, one must use better retirement planning to replace this $50-60,000 of “free money”. One has to either increase other sources of steady retirement income and/or reduce taxes.

Increase Retirement Income: Once the stock market crash of 2008 occurred, Ben Bernanke, Chairman of the Federal Reserve from 2006-2014, said his goal was to reduce short-term interest rates as close to zero as possible. Instead of receiving $5,000 interest, 9 years ago, from $100,000 deposited in a 1-year CD with Wells Fargo, now you get $50 annual interest, or 99 percent less. So, what alternatives have people tried in the last 8 years?

People invested in Master Limited Partnerships, which are primarily in the energy sector, and often act as “toll roads” because they own the pipelines. Cash flow has ranged from 4 to 8 percent when oil prices were over $100 per barrel. Now that oil prices dropped in half this year, the cash flow has dropped and the stock market valuation of these companies has dramatically dropped, by as much as half or more.

People can still get a decent cash flow from Real Estate Investment Trusts (REITs) but Wall Street often overpays for the properties. For example, when at least 3 Wall Street funds came into Phoenix, starting in 2009, they purchased thousands of single-family homes, often paying at least 25-35 percent more than what local Mom and Pop investors were willing to bid at the foreclosure auctions.

An often unknown alternative is the field of private pension funds. Example: last year a 62-year-old female deposited $250,000 in a private pension fund. When she turns 70, she will get $25,000 per year, guaranteed every year for life. This year, a 76-year-old male deposited $200,000. In 4 years he will receive $17,500 per year, guaranteed every year for life. It’s hard to beat an 8.75 to 10 percent annual cash flow.

Save Taxes and Multiply Future Income: If you use the Roth IRA conversion strategy, your cash flow can be tax-free for up to three generations. Or, one can use the Multi-Generational IRA strategy to multiply income 2-10 times for your kids or grandkids.

Free Seminars: “Secrets of Roth & Multi-Generational IRA’s!” will be given 6:30-8:30 pm, Thurs. 11/12/15, preceded by a light supper. On Sat. 11/14/15, 10 am-12 noon, “How to Maximize Your Social Security & Other Retirement Income!” will be given, followed by a light lunch from 12-1 pm. Both seminars will be held at Keller Williams University, 2077 E. Warner Road, Tempe, AZ 85284. Please RSVP at (800) 955-1408.

For a private consultation, contact Dr. Wong at (480) 706-0177, haroldwong1@yahoo.com, or www.doctorharoldwong.com. For his archived research, click on www.DrWongInvestorGuide.com.

What Warren Buffett Might Tell Women & their Families

10/21/2015 by Dr. Harold Wong

Warren Buffett is known as “The Stock Market King”. He was recently ranked the 3rd wealthiest person in the world. He is known for many of his sayings about keys for success in investing and life:

  1. Be Frugal: “If you buy things you do not need, soon you will have to sell things you need.” Buffett is known for being extremely frugal and living in the same house for almost 50 years. Another of Buffett’s sayings is “Do not save what is left after spending, but spend what is left after saving.”
  1. Think Long Term: “Make long-term investments over short-term ones.” He puts it another way: “If you aren’t thinking of owning a stock for 10 years, don’t even think about owning it for 10 minutes.” Yet, look at the typical mutual fund that the public owns. The manager may trade daily and even hourly, trying to justify his fees by his activity level. Virtually every mutual fund violates Buffett’s rule. That’s why most mutual funds don’t generate much long-term capital gains (assets held for at least one year and one day), which has a significantly lower tax rate.
  1. Actions vs. Results: “You know… you keep doing the same things and you keep getting the same result over and over again.” Do you look at the actual results of your financial advisor with a critical eye? Do you stick with an advisor, no matter how much money you lose during a stock market crash? If you are within 10 years of retirement or retired, can you really afford a 30-50% drop the next time the stock market crashes?
  1. Invest Only in Companies You Know and Trust: “An investor should act as he had a lifetime decision card with just twenty punches on it.” That’s why some long-term realtors specialize in knowing which markets are best to buy rental houses in. That’s why Buffett will spend months or over a year, poring over annual reports, before deciding which company to buy next.
  1. Spend Time on Personal Development: “The most important investment you can make is in yourself.” However, women can be torn constantly from demands for attention from their kids and spouse. It’s clear that those with a college degree, on average earn significantly more than those with high school or below. But that goal seems impossible to many mothers.
  1. Manage Your Time Better: “You’ve got to keep control of your time, and you can’t unless you say no. You can’t let people set your agenda in life.” There are many profiles in female courage, where the single Mom is going to college part-time, while working to support her children. This involves saying lots of “No’s” to your kids and friends.
  1. Get Around the Right People: “It’s better to hang out with people better than you. Pick out associates whose behavior is better than yours and you’ll drift in that direction.” Example: tennis players only get better if they play better players. It takes courage and humility to learn from those who are very successful in exchange for a permanent improvement in your tennis, finances, or life in general. If you want a great tax advisor, ask whether he pays a lower rate of tax than you do. Does your financial advisor beat the market indices? This might be how you evaluate your current advisors.

Free Seminars: On Thurs. 10/29/15, 3-5 pm, “Secure Your Financial Future: Lessons from Warren Buffett” will be given, followed by supper from 5-6 pm.  On Fri. 10/30/15, 10 am–12 noon, “How Women, Widows, & Couples Can Increase Income & Reduce Taxes!” will be given, followed by lunch from 12-1 pm. Both seminars will be held at Golden Corral Buffet, Surprise, 17674 N. Litchfield Road, Surprise, AZ 85374. Please RSVP at (800) 955-1408.

Contact Dr. Wong at (480) 706-0177 or haroldwong1@yahoo.com. Click on www.drharoldwong.com or read his archived research at www.DrWongInvestorGuide.com.

What Warren Buffett Might Say About Taxes

10/14/2015 AZ Republic by Dr. Harold Wong

Warren Buffett is known as the Greatest Stock Market Investor of the last 5 decades. In 2015, he was ranked by Forbes Magazine as the 3rd wealthiest person in the world. He is known for many wise sayings about investments; the world of money; and life.

His #1 Rule: Don’t Lose Money!

His #2 Rule: Don’t Forget Rule #1!

It’s a very unique investment philosophy that virtually no one else on Wall Street follows. It’s derived from an understanding of math. If your investments go down by 40%, you will need a total 66.667% increase just to get back to where you started.

The same mathematical result occurs, whether the loss is due to a stock market crash or income taxes. If one earns $500,000 in year one and it is taxed as ordinary income at a 40% tax rate, then there’s a $200,000 loss to taxes. One would then have $300,000 left.

In year two, one would hope for a $200,000 gain in order to get back to $500,000. However, if this $200,000 gain is again taxed at a 40% rate, there would be $80,000 of taxes and one would only have the $300,000 principal at the end of year one plus the $120,000 net-after-tax-gain, or $420,000 at the end of year two.

One would actually need to have a $333,333.33 gain in year two (a whopping 111% gain), less the 40% tax of $133,333.33 to net a $200,000 gain. Now, we would be back to $500,000 at the end of year two, which is where we started at the beginning of year one.

Buffett understands the incredible reduction in net wealth if taxes eat away your gains. As a result, he uses advanced tax planning in order to sell $billions of assets with little or no tax. In fact, he says that it’s unfair that he pays a lower rate of tax than his long-time secretary. During one year, Buffett paid a 17.4% average rate of tax, compared to the 33.0% that his secretary paid.

Buffett would love the Roth IRA conversion strategy. All tax-deferred retirement accounts, whether it is the IRA, 401(k), 403(b), or 457 plan, allow one to deduct contributions; let the earnings grow tax-deferred; and then only be taxed when distributions are taken. There is no capital gains taxation and all taxation of withdrawals is ordinary income. Example of a $100,000 Roth IRA conversion:  one converts $100,000 of any tax-deferred account to a Roth IRA and this creates $100,000 of taxable income in the year of conversion. It’s not an extra tax as money in a tax-deferred retirement account is always taxed when withdrawn.

However, with the money now in a Roth IRA, there is no taxation if two rules are followed: you do not withdraw money until at least age 59.5 and you wait at least 5 years from the time your first Roth IRA was established. Now, there is NO taxation on your earnings, no matter how much you earn, for up to three generations.

You want to pay the Roth IRA conversion tax with money NOT inside the IRA, 401(k), 403(b), or 457 plan, because you want all $100,000 to enter the Holy Grail of tax planning, the Roth IRA. If you earned $1 million or $10 million inside the Roth IRA, there is NO taxation, period.

There are many advanced IRA strategies, involving the Roth and Multi-Generational IRA. If you learn them, amazing things can occur for your family.

Free Seminars: “Secure Your Financial Future: Lessons from Warren Buffett”, will be given on Thurs. October 22, 2015, from 2-4 pm. “Secrets of Roth & Multi-Generational IRAs” will be given on Sat. October 24, 2015, 10:30 am-12:30 pm. Both seminars are at the Desert Foothills Library, 38443 N. Schoolhouse Road, Cave Creek, AZ 85331. Please RSVP at (800) 955-1408.

Contact Dr. Harold Wong at (480) 706-0177 or haroldwong1@yahoo.com. For more information, click on www.drharoldwong.com or www.DrWongInvestorGuide.com for his archived research.

What Warren Buffett Might Tell Women & their Families

10/7/2015 by Dr. Harold Wong

Warren Buffett is known as “The Stock Market King”. He was recently ranked the 3rd wealthiest person in the world. He is known for many of his sayings about keys for success in investing and life:

  1. Be Frugal: “If you buy things you do not need, soon you will have to sell things you need.” Buffett is known for being extremely frugal and living in the same house for almost 50 years. Another of Buffett’s sayings is “Do not save what is left after spending, but spend what is left after saving.”
  1. Think Long Term: “Make long-term investments over short-term ones.” He puts it another way: “If you aren’t thinking of owning a stock for 10 years, don’t even think about owning it for 10 minutes.” Yet, look at the typical mutual fund that the public owns. The manager may trade daily and even hourly, trying to justify his fees by his activity level. Virtually every mutual fund violates Buffett’s rule. That’s why most mutual funds don’t generate much long-term capital gains (assets held for at least one year and one day), which has a significantly lower tax rate.
  1. Actions vs. Results: “You know… you keep doing the same things and you keep getting the same result over and over again.” Do you look at the actual results of your financial advisor with a critical eye? Do you stick with an advisor, no matter how much money you lose during a stock market crash? If you are within 10 years of retirement or retired, can you really afford a 30-50% drop the next time the stock market crashes?
  1. Invest Only in Companies You Know and Trust: “An investor should act as he had a lifetime decision card with just twenty punches on it.” That’s why some long-term realtors specialize in knowing which markets are best to buy rental houses in. That’s why Buffett will spend months or over a year, poring over annual reports, before deciding which company to buy next.
  1. Spend Time on Personal Development: “The most important investment you can make is in yourself.” However, women can be torn constantly from demands for attention from their kids and spouse. It’s clear that those with a college degree, on average earn significantly more than those with high school or below. But that goal seems impossible to many mothers.
  1. Manage Your Time Better: “You’ve got to keep control of your time, and you can’t unless you say no. You can’t let people set your agenda in life.” There are many profiles in female courage, where the single Mom is going to college part-time, while working to support her children. This involves saying lots of “No’s” to your kids and friends.
  1. Get Around the Right People: “It’s better to hang out with people better than you. Pick out associates whose behavior is better than yours and you’ll drift in that direction.” Example: tennis players only get better if they play better players. It takes courage and humility to learn from those who are very successful in exchange for a permanent improvement in your tennis, finances, or life in general. If you want a great tax advisor, ask whether he pays a lower rate of tax than you do. Does your financial advisor beat the market indices? This might be how you evaluate your current advisors.

Free Seminars: On Thurs. 10/15/15, 6:30-8:30 pm, “How Women, Widows, & Couples Can Increase Income & Reduce Taxes!” will be preceded by a light supper from 6-6:30 pm. On Sat. 10/17/15, 10 am-12 noon, “Secure Your Financial Future: Lessons from Warren Buffett” will be followed by a light lunch from 12-1 pm. Both seminars will be held at Keller Williams University, 2077 E. Warner Road, Tempe, AZ 85284. Please RSVP at (800) 955-1408.

Contact Dr. Wong at (480) 706-0177 or haroldwong1@yahoo.com. Click on www.drharoldwong.com or read his archived research at www.DrWongInvestorGuide.com.

How Single Women and Baby Boomer Couples Should Plan for Social Security & Other Retirement Income

9/2/2015 AZ Republic by Dr. Harold Wong

According to recent research (see, “How Social Security Strategies Affect Your Retirement”, May 23, 2014 AZ Republic by Dr. Harold Wong), the average Social Security check to retired workers in 2014 was $1,294 per month. Clearly, this is not enough to live on for a single woman. If the amount is doubled for a couple, it’s still not enough to have a comfortable lifestyle.

How should a single woman prepare for retirement?

She should work until age 70 to maximize SS benefits. Most take SS at age 62 and will get the minimum benefit for life. If one’s SS monthly benefits are $1,294 at age 62, they would be $1,725.33 at 66 and $2,277.44 at age 70. That’s $983/month more or a total of $11,801.28 more each year.

This also gives her 8 more years to save as much as possible towards retirement. If she had a total $300,000 of life savings at age 62, and could average a 5 percent annual return, it would become $443,236 at age 70. If she could save $12,000 annually and earn 5 percent, this would become $120,319. Instead of having $300,000 at age 62, she would have $563,555 or $263,555 more.

Combine SS with the Private Pension Option:

If, at age 62, she deposited $250,000 in a private pension, she would get $23,211 of annual income, starting at age 70 and guaranteed for life. The money would not be in the stock market and so would not lose principal when the market crashes. Now, her total income would be $27,329 of SS and $23,211 of private pension, or a total of $50,540. If she did not implement the private pension strategy, and took SS at age 62 (like most do), her annual income would be only $15,528, or $35,012 less guaranteed income.

If she did not use the private pension, she could derive income from the $300,000 that she saved, but current rates of income are only: 2.20 percent on 10-year U.S. Treasury notes; 2.93 percent on 3-year U.S. Treasury bonds; and 3.47 percent effective yield for the Bloomberg Corporate Bond Index. She could risk her life savings in the stock market, but the average dividend yield is only about 2 percent and we are long overdue for a correction (as shown by recent dramatic price drops in the last few weeks).

How Should a Married Couple Prepare for Retirement?

The higher income spouse, traditionally the man, should not take SS until he’s age 70. When he dies, the wife can take whichever is the highest SS benefit, his or hers. Suppose the higher-income spouse would have $1,500 monthly SS at 62, $2,000 SS at 66 or $2,640 at 70. If the lower-income spouse has $2,277 at age 70, their total SS income at 70 would be $4,917 vs. only $2,794 if both took SS at age 62. Suppose both are age 62 and deposit $500,000 in a private pension plan. At age 70, their annual income would be $42,326, guaranteed as long as both or only one was still alive. When one adds $59,004 of combined SS income, their total guaranteed lifetime income is $101,330. If they both took SS at age 62, their only guaranteed income would be $33,528, or 33 percent of what it could be if they combined the private pension plan with SS maximization.

Free Seminars: Sat. 9/12/15, 10-12 noon, “How to Maximize Social Security & Other Retirement Income”, followed by a light lunch 12-1 pm. Tues. 9/15/15, 6:30-8:30 pm, “How Baby Boomers Should Financially Prepare for a Happy Retirement”, preceded by a light supper from 6-6:30 pm. Both seminars will be held at Keller Williams University, 2077 E. Warner Road, Tempe, AZ 85284. Please RSVP at (800) 955-1408 or email haroldwong1@yahoo.com.

Contact Dr. Wong for a private consultation at (480) 706-0177 or haroldwong1@yahoo.com. Click on www.doctorharoldwong.com or view his archived research at www.DrWongInvestorGuide.com.

How Baby Boomers Can Financially Have a Happy Retirement!

7/8/2015 AZ Republic by Dr. Harold Wong

About 80 million Baby Boomers were born after World War 2, from 1946-64, and now 10,000 Boomers turn 65 every day. Many Boomers plan to work past 65 because they don’t believe their money will last in retirement. They face 3 major risks to a Happy Retirement:

  1. Low Wage Increases and Uncertain Employment: Ten years ago, the U.S. median family income was $50,000 and it’s at the same level today. The Great Recession caused a loss of 10 million jobs. While many of these jobs have returned, they are not with the same pay and full benefits.
  1. Low Interest Rates: When the stock market crashed in 2008, Federal Reserve Chairman Ben Bernanke said his goal was to drive short-term interest rates as close to zero as possible and he succeeded. If you deposit $100,000 at Wells Fargo in a 1-year CD, you get $50 interest at the end of the year. Today, the interest yield on a 10-year U.S. Treasury Note is 2.31% and 3.10% on a 30-year U.S. Treasury Bond. The U.S. Bloomberg Corporate Bond Index is at 3.37% and the Bloomberg Municipal Bond Index is at 2.66%.
  1. Uncertain Future Stock Market Returns: A recent June 9, 2015 article states that one must lower one’s expectations of stock market returns, “Exclusive: Vanguard Founder John Bogle Projects ‘Nominal to Zero” Real Returns Over the Next Decade” by Wayne Duggan, found in www.finance.yahoo.com. Because of the unpredictability of future stock market returns, the recent academic literature has lowered the “4% Rule” to the “2.8% Rule”. This means that if you have saved $1 million, you can withdraw $28,000 and then increase it by about 3% each year to account for inflation; and have a good chance of not depleting life savings to zero before your death.

There are 3 things that Baby Boomers can do to Financially Prepare for a Happy Retirement:

  1. Save substantially more: For decades, the field of financial planning says that one’s goal is to save 10% of one’s income. This is not enough! I had a recent discussion with one of the Vanguard employees who manage the $billions of Google 401k money. We both agree that one has to save 20-25% of one’s income to have the same income in retirement as when working.
  1. Maximize Social Security income: “Among elderly Social Security (SS) beneficiaries, 52% of married couples and 74% of unmarried persons receive 50% or more of their income from Social Security”, “How Social Security Strategies Affect Your Retirement” by Dr. Harold Wong, May 23, 2014 AZ Republic. If your SS income at 66 is $1,600 monthly, it would be $1,200 if you took SS early at age 62 versus $2,112 if you took it at 70. Yet, only 1.2 % of men and 2% of women waited until age 70. The average SS check was $1,294 in 2014.
  1. You Must Consider a Private Pension: In July, 2014, a nurse age 62 deposited $250,000 into this concept. When she retires at age 70, she will receive $25,000 per year, guaranteed as long as she lives. Her cash flow alternatives for the same $250,000 were: $125 interest from Wells Fargo; $5,000 from a 10-year Treasury Note; $7,500 from a 30-year Treasury Bond; or an average $5,000 dividend yield from the U.S. stock market. There is virtually nothing else that pays a higher rate of guaranteed cash flow than a private pension.

Free Seminars: “How to Maximize Your Social Security and Other Retirement Income” will be held Saturday, 7/18/2015, 10:30 am-12:30 pm. “How Baby Boomers Can Financially Plan for a Happy Retirement” will be held Saturday, 7/25/2015, 10:30 am-12:30 pm. Both seminars will be at the Desert Foothills Library, 38443 N. Schoolhouse Road, Cave Creek, AZ 85331. Please RSVP at (800) 955-1408.

For a private consultation, contact Dr. Wong at (480) 706-0177; haroldwong1@yahoo.com, or www.drharoldwong.com. For his archived research, click on www.DrWongInvestorGuide.com.

Secrets to Maximize: Retirement Income with Social Security, and Asset Protection with the Rockefeller Trust

6/10/2015 AZ Republic by Dr. Harold Wong

John and Mary Jones are both age 66 and have worked their whole lives. They got lucky with some private company stock and are worth $21 million. What are some of the strategies they could consider?

Maximize Social Security (SS) Retirement Benefits with the File and Suspend, Spousal, and Widow Survivor Benefit Strategies!

Age 66 is considered Full Retirement Age for their SS benefits and John would get $2,500 per month. However, he would get 32 percent more (or $3,300 monthly) if he waited until age 70. Mary would receive $800 monthly if she took SS at age 66 or $1,056 if she waited until age 70. To maximize joint SS income, John should File for SS at age 66, but Suspend taking it until age 70. Mary can use the Spousal Benefit and take half of his $2,500 at age 66, or $1,250 per month. She does this for 4 years until she turns 70. She decides to retire from her job at age 66. Let’s summarize what the couple has done:

  • Mary gets $1,250 monthly for 48 months from age 66 to 70, a total of $60,000. She will continue to take this as long as John is alive.
  • By waiting to take his SS until age 70, John gets $800 more each month. From age 70 until his death at age 85, this is $144,000 more. Just as importantly, he will provide the greatest Spousal Benefit possible for his wife Mary.
  • If John dies at age 85, Mary must remember that she will get just one SS check, whichever is highest. She will then switch from her own Spousal Benefit SS check of $1,250 to his $3,300 check (now her Widow Survivor Benefit), or $2,050 more each month. If she dies at 95, this will be an extra $246,000 over the next 10 years.
  • Note: No Cost of Living Adjustment (COLA) increases to SS benefits were considered in order to make this scenario easier to calculate.

They want to protect their two kids and 4 grandkids from divorce, lawsuits, and estate tax with the Rockefeller Trust.

If they were to both die in a car crash, they would owe about $4 million of estate tax. They decide to spend $80,000 annually for a guaranteed cash value life insurance policy with a second-to-die death benefit of $4 million. This policy will be held in the Rockefeller Trust, and so the $4 million will pay off the current estate tax and not be considered part of their taxable estate. Had they owned the life insurance policy personally or in their Revocable Living Trust, the $4 million would be part of their taxable estate and create another $1,600,000 of estate tax (40 percent rate currently in 2015).

They transfer most of their estate into the Rockefeller Trust. If their two kids each have 3 divorces, their spouses cannot get any of the assets in the Rockefeller Trust. If the four grandkids each have a bad lawsuit judgment, the creditors cannot get any of the assets. When the kids or grandkids die, there is no estate tax. They can even restrict the heirs to receive income only, so the principal remains intact. They have now bomb-proofed the family assets, just like the Rockefellers and Kennedys have.

Free Seminars: On Thurs. 6/18/15, 6:30-8:30 pm, “Secrets of the Rockefeller Trust” will be given, preceded by a light supper from 6-6:30 pm. On Sat. 6/20/15, 10-12 noon, “How to Maximize Your Social Security & Other Retirement Income” will be given, followed by a light lunch from 12-1 pm. Both seminars will be held at Keller Williams University, 2077 E. Warner Road, Suite 110, Tempe, AZ 85284. Please RSVP at (800) 955-1408.

Contact Dr. Wong for a private consultation at (480) 706-0177 or haroldwong1@yahoo.com. For future seminars, click on www.drharoldwong.com. For his archived research, click on www.DrWongInvestorGuide.com.

Common Sense IRA and 401(k) Strategies

5/6/2015 AZ Republic by Dr. Harold Wong

For many, especially in the Baby Boomer generation, most of their financial assets are in their IRA or 401(k). Here are some strategies that can make a big difference for your retirement:

  1. Maximize your annual contribution to your IRA and get the full employer match to your 401(k). Suppose you earn $60,000 and the employer will match 50 percent of your 401(k) contribution up to 5 percent of your income ($3,000). The employer match is then $1,500 and you have a total of $4,500 saved. If you contribute $5,500, the maximum IRA contribution in 2015 (and it’s $6,500 for those age 50 or over), you will have saved $10,000. This $10,000 contribution may save you at least 20 percent income tax, or another $2,000. If you do this for 30 years, such as age 35-65, and earn an average 4 percent annual return, you will have $699,940 at age 65.

 

  1. Seriously consider a Roth IRA instead of a traditional IRA. In our example above, if you contribute $5,500 to a Roth IRA, you will not be able to deduct the $5,500 and will not save $1,100 of tax. However, this means that any earnings for the rest of your life on a Roth IRA are non-taxable. If you started saving $5,500 in a Roth IRA and did this for 30 years, with an average 4 percent return, you would have $320,806 at age 65. Of this $165,000 would be your total contributions and $155,806 would be tax-free earnings. I know that everyone wants to minimize their taxes every year, but you won’t even notice the $1,100 of annual tax savings that you don’t get. The average person who goes to Starbucks spends at least $6 a day, 5 days a week, which totals $1,560. Just bring a thermos of coffee or tea to work. When you retire, it’s a relief to know that any income from a Roth IRA is tax-free. Warning: if you have high income, you may be restricted from contributing to a Roth IRA.

 

  1. Rollover your 401(k) to an independent IRA as soon as your employer allows. Many studies have shown that the same mutual fund held in a 401(k) has higher fees than if that investment was held in an independent IRA. Wall Street knows that money is trapped for years in a 401(k) and employees are restricted to the investment choices allowed in their 401(k) plan. Suppose you could reduce fees by only 1 percent and could earn only 1 percent more if you had more choices in your independent IRA. If you rolled out $500,000 from your 401(k) at age 60, and the net return (after fees) was 5 percent instead of 3 percent, you would have $1,039,464 instead of $778,983 by age 75 or $260,481 more.

 

Most employees do not realize that most employers allow you to do an “in-service” distribution of your 401(k) funds to an IRA of your choice. Normally, one has to be at least age 59.5. However, if you are laid off, quit, or are fired, you are now free to rollover your 401(k) to an IRA at any age. If the “in-service” distribution provision is not in your 401(k) plan; complain to your human resource department or the president of your company. The company can ask the 401(k) provider to add the “in-service” distribution provision.

Free Seminars: “Common Sense Financial Strategies” will be on Wednesday 5/13/2015 from 6:30-8:30 pm, preceded by a light supper from 6-6:30 pm. “Secrets of Roth and Multi-Generational IRA’s” will be held on Saturday, 5/16/2015 from 10-12 noon, followed by a light lunch from 12-1 pm. Both seminars will be held at Keller Williams University, 2077 E. Warner Road, Tempe, AZ 85284. Please RSVP at (800) 955-1408.

For a private consultation, contact Dr. Wong at (480) 706-0177, haroldwong1@yahoo.com, or www.drharoldwong.com. For his archived research or future seminars, click on www.DrWongInvestorGuide.com.

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