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Planning for a Long-Term Life
Social Diary Wealth Management Columnist Martin
S. "Duke" Johnson
Duke Johnson JD MBT CLU, - Column#1, February 3rd, 2006
Got an Exit Plan?
million Americans will reach retirement age over the next twenty
years and will face economic, tax, and investment issues that
will challenge traditional assumptions about retirement. More
than ever before, we must redefine "living within our means"
in order to save more. We must balance our financial priorities
for today with tomorrow's expected retirement lifestyle. Over
your "paycheck years," use Duke's basic "Cocktail
of 72" -- at 7%, your money will double in 10 years,
at higher rates it grows more quickly and vice versa;
"60/40" -- 60% stock, 40% fixed income
suitable for those 65 and under;
"50/50"-- 50% stock, 50% fixed income,
perfect for investors over 65.
are four important financial realities which must be addressed
now even if your retirement is in the distant future.
This is not to suggest, as the TV ad does, that a simple tweak
to your portfolio will get you the villa!
One: An average 65 year old may expect to live another
20 years; accordingly, our portfolio planning now projects income
all the way to age 90. In addition, we look at deferred and immediate
annuities to help clients guarantee income for their lifetimes.
We use these income securities to complement a balanced portfolio
of stocks and bonds, and then generate "cash flow" on
a total return basis. Reality dictates that total portfolio return,
not just the income stream, is necessary to meet 20-30 years of
Two: Forget the pension plan income for life. Even corporate
America has forsaken this basic retirement income tool. Litigation
continues today as an attempt to prevent large companies from
changing Deferred Benefit Pensions to Profit Sharing and 401(k)
type plans for employees. The reality is that you must use both
pre-tax and after-tax savings plans to provide for your retirement.
Maximize contributions to your plans at work; use pre-tax plans
for medical and dental expenses, and if you have dual incomes,
employ the "80/20" rule and save 20% of earnings in
a Vanguard CA Tax-Free Fund or a balanced fund similar to the
Dodge & Cox Balanced Fund (now closed to new investors).
Three: Imagine -- retirement will cost more! This is
the second Great American Myth; in fact, our experience shows
that in the first "transition" year, spending increases
by nearly 20%! And don't forget taxes-- you'll likely be in the
same tax bracket as you were in your working days, unless you've
loaded up on tax-frees over the years.
Four: Personal saving is a must! Too often, people buy
real estate and treat it like a bank account. With current low
mortgage rates it is easy to forget about saving and assume that
appreciation can substitute for putting money away. Our real estate
cycle will change -- I've seen it go up and down over the past
four decades in San Diego. There is already evidence to support
a slowing real estate market! Building a prudent "exit plan"
requires: systematic savings plans (20% of gross income) and a
minimum of 50% in low-cost, tax efficient equities balanced with
REITS and foreign and municipal bonds.
For a comfortable retirement, you'll need twenty times
your annual income objective! If you need $100,000 to
retire this year, you'd better have $2 million in pension and
investments saved away. If not, according to WSJ Financial columnist
Jonathan Clements: "cut taxes, fire your
broker, and get a part time job!"
Martin S. "Duke" Johnson is the President &
Chief Investment Officer of La
Jolla Institute for Wealth Management. Johnson's
credentials include: JD, University of Connecticut School of Law;
MBA (Tax) Golden Gate University, San Francisco; BA, Baldwin-Wallace
College, Berea, Ohio; CLU, American College, Bryn Mawr, Pennsylvania;
American, Connecticut & Colorado Bar Associations
Johnson has over 30 years of diversified experience in the fields
of investment counseling, taxation, insurance, estate planning,
and law. Previously, Mr. Johnson was Vice President of E.F. Hutton's
Personal Financial Management division and served in various investment
and management positions for Aetna Life & Casualty and INA
to New this Week........Duke
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