Why Wait?

I was asked the other day, “what is the best advice you’d give someone with regards to investing?”  My first thought was to say something that sounded intelligent and would make a good impression.  After a second, I thought better of that and answered simply, “Start.”  They were taken aback and replied, “Start?  That’s it, just start?”

Yes:  start.

Let’s consider two scenarios:

Client 1 is 25 years old, just beginning his career.  Over the next ten years, he invests $5,000 each year.  If we assume an annual return of 7.5% (not unreasonable in a growth-based mutual fund), by age 35, Client 1 has $70,735 in his account.  At this point, he stops saving, but leaves his account alone to let it grow to age 65.

Client 2 is 45 years old and decides that if he wants to retire anytime soon, it’s time to start saving.  Over the next 20 years, he saves $10,000 each year.  Assuming the same 7.5% annual return, at age 65 his account value grows to $433,046.  Not bad!

Now, let us compare.

		Client 1	Client 2
Age started saving		25	45
Amount saved per year		$5,000	$10,000
Saving period		10 years	20 years
Total investment		$50,000	$200,000
Growth Rate		7.5%	7.5%
Account Value at age 65		$619,281	$433,046

Client 2 saved four times as much as Client 1, and for twice as long.  You’d think Client 2 would be the winner in this scenario, but the numbers don’t lie.

When is the time to start?

Chuck Wade

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).

Perspective from the Checkout Line

As I stood in line this past Sunday at Wegmans, amidst the usual sea of candy bars, energy shots, and chewing gum, I was faced with a dilemma.  As I stared down my favorite pack of gum, I couldn’t decide whether to buy or leave it alone.  Luckily, my phone’s calculator helped my answer the question as I waited for those in front of me to cash out.  Allow me to explain.

Our good friends at the IRS recently raised the contribution limit for 401(k) retirement plans by an additional $500 starting in 2013.  This means the amount you are now able to save for retirement during this coming year is $17,500.  Those over the age of 50 have an even sweeter deal, as the “catch-up” contribution of $5,500 that you’re allowed brings your maximum contribution to $23,000.

Now, I am not naïve enough to think that money grows on trees and we‘re all contributing the maximum amount right now and can easily add another $500 to that total.  In fact, according to this CBS article, just 5% of participants nationwide are making the maximum contributions to their retirement accounts.  That is understandable when you look at the cost of daycare, college tuition, and a single gallon of gasoline.

But consider this.  Over the course of a year, $500 breaks down to approximately $1.40 each day.  If you take that $500 and put it towards your retirement in each of the next 20 years, assuming a 5% yearly return, the extra $10,000 that you’ve contributed will be worth nearly $17,000.

Now I can answer the question – do I really need the gum?

Chuck Wade

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).

Equality at Eastman Kodak

Yesterday we learned that the bankrupt Eastman Kodak Company has reached agreement with the court-appointed “1114” retiree group (named after a bankruptcy code clause covering retiree benefits) to terminate health care benefits for all retirees effective December 31^st of this year.  No, this wasn’t a shock for anyone, particularly not for retirees who have been expecting to lose some or all of their benefits even before Kodak filed for Chapter 11.  Everyone knows that this sadly mismanaged company can no longer afford to deliver on its promises.  As usual, CEO Perez once again hailed a wonderful management achievement, saying: “With this proposed resolution to our U.S. retiree benefit legacy liabilities, Kodak takes a major step forward toward our successful emergence. (The) agreement is a decisive accomplishment toward one of our fundamental objectives in our restructuring.”  Every time I hear him use the word successful I say “huh?”

Here’s what we know:

Kodak has reached agreement with the 1114 committee (court approved retirees committee, unrelated to EKRA) to terminate retiree non-ERISA benefits at year end. This will include health, dental, life insurance, and survivor benefit (SIB).

The company will pay to the retiree committee:

1. $7.5 million cash
2. $635 million unsecured bankruptcy claim
3. $15 million administrative claim

What’s all that worth?

Depends on what creditors get out of the bankruptcy, but I would not expect them to get more than about 20 cents on the dollar on those claims, in total. That would mean the whole package is worth, in my estimate, about $137 million.  The current health benefits are estimated at a total of $1.2 billion, and cost Kodak $10 million a month.  So $137 million will not go far.

What should retirees expect?

Those over 65 now get Medicare plus an enhancement.  The enhancement will no longer be funded by Kodak.  Those under 65 have the most exposure, particularly if they are no longer working and may have to scramble for healthcare at considerable expense.  Benefits will terminate at year end, but the bulk of the promised payments to the retirement committee consist of bankruptcy claims, which will get paid at the end of bankruptcy, and that won’t come until March of 2013 at the earliest (and probably May or June).  Thus retirees face an almost certain gap in their coverage. There may be some recompense for some or all retirees, but based on the amount the committee can expect to realize vs the current cost of benefits, that recompense will likely not be much.

And about that word, Equality: 

Kodak has thousands of shareholders, creditors, and retirees.  With this news the retirees will get equal treatment with the shareholders and creditors.  The message to all: stand in line and hope for something from the bankruptcy of this once-great company.

GTC

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).

Guess?

It wasn’t long ago that I was in my backyard yelling at my smoking lawnmower that had just stopped working.  After calming down, I did some research and tried to fix it myself.  After tinkering with the carburetor (making it worse) and unscrewing the motor (felt like a man, didn’t help), I had fixed nothing.  This is what happens when I guess at things.  Luckily, our local repairman knows his craft and the mower was repaired and my lawn cut in no time.

It’s not all that different than retirement and answering the question, “how much do I need to retire comfortably?”  Many have taken to answering that very question with a time-tested solution called “guessing.”  That’s right, guessing.  A recent study showed that 34% of the participants either “guessed” or “made up” an estimate of how much they would need to retire.

Guessing is fine if you’re trying to win a stuffed animal at Darien Lake by letting the fellow with the microphone guess your age, give or take a few years.  Would you pay him a dollar to guess how much you should be saving in order to retire?

Instead of guessing, speak with an advisor you trust.  We have a powerful tool that allows our clients to not only define their retirement goals, but to design a plan tailored to their specific needs to get there.  Along the way, when life events and changes happen, we account for them.  And at any given time, our clients always know the answer to the question, “how am I doing?”

It’s called Envision, and we’d be happy to put a plan together for you.  One that provides specific answers and recommendations that fit your life goals – instead of a guess.

Chuck Wade

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).

Time to review Social Security

Last year the Social Security Administration (SSA) stopped mailing statements to taxpayers to reduce their costs (by about $70 million).  Earlier this year they resumed mailing to people 60 or older who have not yet started drawing social security.  Now they have launched a new online version of your social security statement, available at www.ssa.gov.

If you are doing any retirement planning this SSA tool will provide useful information.  The tool will show your estimated benefit amount at early retirement age (62), full retirement age (typically 66-67) and if you wait until 70.  The estimates are based on your current earnings rate.  You are also provided with a history of your prior years’ earnings.  Since benefits are based on your 35 highest earning years, it would be wise to verify that yours have been posted accurately in Social Security’s database.  This tool will also show estimates for disability and survivor benefits, including the amount your spouse and children would receive if you pass away.

If you have not started your retirement planning, now would be a great time to start.

Joe Arena

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).

IRSCIRCULAR 230 NOTICE:

As required by U.S. Treasury Regulations, please be advised that any written tax advice contained in this communication was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code.

Ground Rule #1: Give Yourself a Raise

Sure everyone would if they could, but an increase in salary is not what I’m talking about here.  What I’m suggesting is the most important thing you can do to build your retirement savings: give your retirement contributions a raise.  Once you get in a 401(k) or 403(b) and establish your contribution, you can go about the rest of your life and not have to think too much about your plan.  Some people think about increasing their contribution, but years can go by before you get to it.  After all, there’s more to life than spending every waking moment thinking about your investments (except for me).

So the raise idea is this: set a date every year to increase your percentage.  It could be your birthday, your anniversary with your employer, maybe Arbor Day.  On that day every year, bump up your contribution by 1%.  If you started with, say, 2%, then in 4 years you will have tripled your rate of savings.  You won’t miss the extra few bucks each year, and your account balance will grow much faster.  It may be the only case where you can give yourself a raise. If you are serious about growing your net worth, don’t ignore this rule.

GTC

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).

Ground Rule #4: Cash is Trash

In most 401(k) and 403(b) plans, money market and short-term bond funds are among the most popular investment choices.  That is especially true recently, when fear and panic among investors sent many scrambling for something more stable than the stock market. With the smoke cleared from last year’s financial crisis, retirement plan investors are noticing something they always knew but had not cared about last year: you will make nothing (or close to nothing) on money market and short-term bond funds.

Are those funds really safer? That depends on how you measure safety.  If having too little money to live on in retirement would make you feel uneasy, then you should be uneasy about having a money market fund in your retirement plan.  With rates close to zero, you’ll never see your account grow to the point where it will give you a comfortable retirement. 

There is a cost to everything in life; you get what you pay for.  With a money market fund, what are your getting?  You’re getting stability and liquidity – you can pull your money out whenever you wish.  And what does it cost? You get little or no return – and that cumulative “cost” over time can be enormous.  Unless you’re on the edge of retirement, you’re not going to be drawing money out of your 401(k), so accepting the cost of a low return means you’re paying for something – liquidity – that you are not getting.

Keep your eyes on the prize: a healthy account balance in retirement.  You’ll only get there if you have robust investment returns. And when it comes to returns over time, cash is trash. 

GTC

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).

Ground Rule #10: Start

Today I’ll start the countdown of my Ten Ground Rules for 401(k)/403(b) Success. These are common sense guidelines I have refined from nearly three decades of talking with clients and observing their results within employer-sponsored retirement plans.

The first rule seems so simple and obvious as to be unnecessary: Start.  Get started. Enroll in whatever plan your employer makes available.  It’s surprising how many people delay their participation in retirement plans. There are always reasons: you’re new on the job and not familiar with the plan, or you feel you can’t afford to, or you mean to get involved but just hadn’t gotten around to it.  Would you fail to sign up for your employer’s health insurance benefit? Would you not take any vacation because you hadn’t gotten around to understanding the time-off rules? Of course not.  Building your personal net worth is just as important, it’s just not as immediate.  So focus on your employer’s plan, ask for guidance if you need it, and enroll.

Some people get frustrated by articles stuffed with numbers showing how much money you need to save to retire.  That frustration can cause them to avoid participating altogether and make the goal even harder to reach.  Don’t worry about goals, not yet.  Just get in your plan and start contributing. Without a start, the rest of my rules won’t do you any good.

GTC

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).

Women Need Financial Planning

Time for some startling statistics…

According to research by Wells Fargo, affluent women are significantly less confident about retirement than men. The least confident of all are single women, and the most confident are married men.

About 700,000 women will lose their husbands this year.  The median age when a woman is widowed is 59.

So…women are less confident than men, they are often widowed at a young age, they live on average longer than men and they control more and more of our nation’s wealth. 

What to do?  Women must take charge of their own financial lives.  This means-

1. Selecting a competent Financial Advisor who is willing to take the time to explain investing and insurance concepts and options to you, with patience and in terms that you can understand.  They should also be able to concisely explain to you the ways in which they are compensated by fees and / or commissions.
2. Doing a budget and understanding your spending and cash flow needs.
3. Where possible, spending less and saving more.  You really cannot save enough money for retirement.  Social Security might not be around in its current format for younger people, most of us no longer have pensions, we have to worry about historical inflation of 3-4%/year, we are living longer / being kept alive longer and the costs of college, healthcare and long term care are all skyrocketing. 
4. Defining your important financial goals, both short and long-term.
5. Gathering up your financial account statements and making folders or a binder for them, so you have records of all of your accounts and know where to find them.
6. Taking the time to work with your trusted advisor to develop a living, comprehensive financial plan that (minimally) addresses retirement, survivor and estate planning.

If you would like assistance with determining what your important financial goals are and how to achieve them, please feel free to contact me at (585) 340-2229.  Thank you.

Susie L. Light
Financial Advisor

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).

Bargain Hunting

Last Tuesday, the S&P 500 closed below its 50-day moving average for the first time since December, 2011. A sign of trouble, this came after the markets have pulled back recently, due to factors such as European sovereign debt fears and a sluggish jobs report last week.  Wednesday saw a nice rebound, however, as the Dow Jones Industrial Average was up about 100 points and the S&P 500 about 12 points as of 3:00pm. Excellent earnings reports from Alcoa and a positive homebuilding report have helped fuel today’s rally. 

 What does this mean to the individual investor?  While stocks are still in positive territory for the year, and many are still near their historical highs, the recent pull-back means there are some bargains to be had. 

 Remember that nothing has changed in terms of the fundamental keys of successful investing…diversification, buy and hold good dividend-paying companies, buy low and sell high and dollar cost-averaging (among others).   This is a good opportunity to dollar cost-average into quality companies that are now a little more attractively priced.  This means putting a little money at a time into the market, thus lowering your average cost.  It also is a lower risk method of getting participation in a rocky market than dumping all of your money in at once.  Companies that I like include Bristol-Myers Squibb (BMY, $32.65.sh., 4.16% dividend), Coca Cola (KO, $72.21/sh., 2.835% dividend) and Intel (INTC, $27.89/sh., 3.01% div.). 

 The use of quality mutual funds is a great way to get exposure to a large basket of great companies like these with a small sum of money.  They are very conducive to setting up an automatic periodic dollar cost-averaging program.

 If you would like a complimentary review of your portfolio or to discuss comprehensive financial planning (retirement, insurance, retirement income, long term care, disability, survivor, estate and college planning) please contact me at (585) 340-2229.  Thank you.

Susie L. Light
Financial Advisor

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).