Retirement Planning Strategies Blog with Ann Vanderslice

What It Means

Consumer Credit Inched Higher – The lack of follow-through in retail sales
notwithstanding, consumers decidedly pulled out their credit cards over the holidays.2
What it means – The move higher in consumer credit was not confined to student loans
and car loans, as it has been in the past. The problem is that, even with this use of
credit, retail sales were not on fire, and with wage compression and a lack of new job
growth, can this credit expansion continue? It seems unlikely.

2 The Economic Times, January 11, 2012

FBTN Advisor Training Part 1

FBTN Advisor Training 2012 Part 1-1

What it Means

Retail Sales Disappoint – The December retail sales came in at an anemic 0.1% gain from November, and were actually down -0.2% when autos were excluded. 1

What it Means – This is the second lower reading in a row, and is not the sort of thing that builds confidence in a growing recovery based on consumer purchases. This does fit the rest of the economic picture, as the jobs picture has not improved appreciably and, more importantly, wages continue to be under pressure. Given these two realities, expecting retail sales to march ever skyward seems a bit of a reach.

1. www.bloomberg.com

Retirement Planning

Federal employees spent much of 2011 thinking about what proposed legislation might be affecting you, or worrying about a furlough, or addressing how future budget cuts might impact your agency. These are all things that happen to you. This month’s Steps to Retirement Planning focuses on the things related to your benefits that are within your control.

1. How much you save – whether it’s saving in your Thrift Savings Plan or outside investments or real estate, you control how much you save now. This is a piece that Congress can’t dictate. You get to determine how much you’re willing to forego today in order to protect your interests for the future.

2. Where you save – if you’re in FERS, of course, you’ll save at least 5% in the TSP…you get a 5% match from the government. Savings beyond the 5%, however, are a different story and require more thought. TSP has very low fees (which can erode your return), but there are a limited number of investment choices. You may want to investigate a wider range of investment options or you might prefer that some of your funds go to a Roth IRA investment where the growth is tax-free. There will be a Roth TSP option coming in 2012, so pay attention to determine whether it makes sense for you to save something here.

3. How you allocate the funds you’re saving – this is probably the most common question we hear from federal employees. How should I allocate my TSP? It’s particularly difficult in the economic times we live in. Many TSP participants started in the TSP in the ‘90s when investing was nearly as easy as throwing a dart. The last eleven years have been more difficult. There’s no one who cares about your TSP more than you do, so developing a strategy for allocating and managing your TSP is more important than ever before. If your pension benefits were cut, the TSP is the piece of your retirement that you control.

4. Keeping the cost of your benefits (i.e., insurance coverage) at the appropriate level – you’ll notice that I didn’t say keeping them low at all costs. You have to evaluate the overall expenses involved with your coverage.

For example, if you choose a low-cost Federal Employee Health Benefit option, only to pay huge out-of-pocket expenses, it didn’t doyou much good to save on premiums. Your overall health care expenses are the marker you’re looking to lower.

The same is true for the Federal Employees Group Life Insurance plan. Start with how much coverage you need, then start to look at the best place to obtain your coverage. This is different from the FEHB in that you can go outside of the federal universe to look for this other coverage. Are you healthy enough to get private life insurance? Would it provide a lower cost, longer term coverage or better benefits? Having a plan that is tailored to your situation can save you money.

Watch this column in future months for more tips on taking control of your benefits. If you’d like to take advantage of a complimentary insurance review, contact our office.

Economics 101

Welcome to 2012!

We leave one crazy financial year behind and begin what should prove to be another!

There’s an old adage about the safest way to commute being on a rollercoaster. Even though it goes through twists and turns, and can even go upside down, it is generally safe and always gets you back to where you started. Unfortunately, at the end of the commute you have not advanced at all and the ride cost you money. Looking back over 2011, this seems like an appropriate description. Looking forward to 2012, it looks like more of the same, without knowing exactly where it will end!

While unemployment has fallen slightly, the US economy is replacing high paying jobs with low paying jobs. A recent study from Rutgers University (“Out of Work and Losing Hope”, Zukin, Van Horn, and Stone, September 2011) shows that of the people who lost jobs in 2008-2009, 52% of them took a pay cut when they found a new job. Of course, this only applies to those that found a new job, which was roughly 43% of the group. That’s not good news for those who lost their jobs, and it is terrible news for those just entering the workforce. It is this pressure that is keeping wages low, which ripples through the economy in the form of lower spending, less use of credit, and a generally higher level of repayment delinquencies and foreclosures.

On the real estate front there are competing forces. Builders have been selling more new homes, but at lower prices. This could be the normal outcome of having builders sit on empty land for years. Eventually they have to build homes in order to get rid of their raw land. If the way to do this is by selling at lower prices, then so be it. However, this has a huge side effect, it puts even more downward pressure on existing home prices, which have continued to fall in price for another year.

These types of macroeconomic issues would generally be enough to cause a stall in equity prices, but lately there has been an up-tick as large companies have posted decent profits. Among these companies are large multinational firms that earn significant portions of their revenue outside of the US. With Europe on the ropes and China slowing down, the outlook for foreign revenues has dimmed.

What all of this means is that the financial crisis of 2008 has yet to be fully addressed. There have been continual government programs meant to push the economy higher, only to have limited, if any, success. The same is true in Europe and even in China. The secret source of all of our woes is not very secret at all – it’s debt. We have too much debt in the US, the Europeans are certainly weighed down by it, and the Chinese are just now revealing the massive amounts of debt that were used to propel their economy higher over the last few years. Until there are clear plans for dealing with all of the debt, the rest of the programs that are being implemented or discussed will have limited positive affect. To us as investors, this means another crazy year of tumultuous market moves, punctuated by government pronouncements and, most likely, more failed policies.

The act of investing has become much harder in the last four years, but that does not mean that we can shy away from it. Now, more than ever, investment discipline and the hard work of research and education show their worth.

What It Means

Jobless Claims Jump to 399,000 in December1

What it Means – After several weeks of jobless claims falling, the measurement shot higher to just under the magic 400,000 this week. Of course, since this number gets revised 99.9999% of the time, look for the true nuimber to be over 400,000 when revised on January 19th. Is this a reflection of outsized seasonal hiring (and firing) for the holiday? Could be.

1. www.bloomberg.com

Dow Surges 490 Points – Wall Street Journal, November 30, 2011

It appears that Santa Claus came a little early this year. Buoyed by news that the world’s central banks were banding together to make emergency funding available to Europe’s troubled banks, the stock market enjoyed one of its best days in years. The Dow Jones Industrial Average jumped by nearly 500 points, putting the index in positive territory for the year.

After a month of choppy volatility that has kept investors on edge, it was a welcome respite. It appears that—at least for now—the world as we know it isn’t ending. But given that our retirement portfolios are on the line, we should read headlines like these with a skeptical eye. The coordinated action by the Fed, the European Central Bank, the Bank of England, the Bank of Canada and the Bank of Japan should guarantee that, at least for the time being, we don’t have another 2008 “Lehman Brothers moment” where the financial system goes into cardiac arrest. That’s the thinking, at any rate.

But the action does nothing to address the excessive government debts that led to this crisis in the first place. Italy still has debts in excess of 120% of GDP, and much of the rest of the Eurozone is not far behind. And while we like the enthusiasm of policy wonks who suggest that Europe can grow out of its problems if only the countries implement the proper free-market reforms, it simply may not be possible. Aging demographic trends in much of the Eurozone make the fast-growth of the post-World-War-II years next to impossible.

Suffice it to say, Europe has some very difficult choices to make—such as whether there should be a unified Europe at all. All of this creates uncertainty, and markets tend to hate uncertainty. So, expect a lot more choppy volatility. Hope for the best, but prepare for the worst.

As we enter the last month of 2011, we have a lot to look forward to in the New Year. We will have a presidential election, with all of the excitement and hope that a new election cycle brings. We will have an Olympic Games in London. (Britain’s Queen Elizabeth II will also be celebrating her “Diamond Jubilee” of 60 years on the throne for those looking for an occasion to celebrate.)

Regardless of what happens in the European sovereign debt crisis, life will indeed go on. European states have defaulted on debts numerous times over the centuries. The cycle of debt and default is, for better or worse, part of the rhythm of history. As investors, we simply have to be smart about how we allocate our funds and be prepared for whatever surprises the markets have in store for us.

An Abacus and a Pencil

An abacus and a pencil – it may feel like that’s how your retirement claim is being processed. In two separate articles published in GovExec and Federal Times this week, delays in retirement processing by OPM were addressed again. The GovExec article originally quoted John Berry (corrected in a later version) as saying that OPM was processing an average of 3.5 applications a day! Seriously? 3.5?

When retracted, there wasn’t a correction of exactly how many they are processing which makes one wonder if they know. The article also stated (confirmed by an anonymous source at OPM) that there are currently 60,000 pending retirement applications in the queue for processing. And that backlog is before we get to the end of the year when the majority of federal employees retire.

Without significant changes, that backlog will get a lot larger before it gets smaller. However, there seems to have been an improvement in the amount retirees are receiving in interim retirement payments. Beginning last June, those interim payments began using agency retirement estimates as the basis for determining the temporary amount.

Since you cannot control how long it takes OPM to process your retirement claim, you may want to ensure that your retirement estimate is accurate so you stand the best chance of getting the maximum interim payment.

Wall Street News

In the retirement classes I conduct, when federal employees are asked whether they trust Wall Street, there is always a resounding, “No!” Being skeptical myself about the benefits that Wall Street traders supply, I decided to head to the Big Apple for some research.

On October 11^th, Barry Ritholtz, an opinionated, yet very approachable NY analyst, put on what’s known as The Big Picture Conference at the New York City Athletic Club. The agenda included economists, traders, analysts, strategists (I’m not sure the difference even after spending the day with them) and financial reporters and bloggers.

This was a group of intelligent people working in the heart of our country’s financial district. While their viewpoints came from a perspective of making money as an investor/for investors, there were clear opinions about the economy; where we’re headed (most were honest enough to admit that they just didn’t know) and some investing advice.

So here are things I came away with and learned on my day on Wall Street. (We were about 15 minutes away from the actual street and the Occupy Wall Street protest) :

The growth experienced in the 80’s and 90’s was spurred by debt – not real growth in the economy. This has left us, as a country, over-leveraged both at government and private levels. There are only 2 ways to de-leverage:

Let credit deteriorate (painful bankruptcies, values drop)
Print money (keeps debtors nominally solvent). This option takes longer and is less painful, but It doesn’t reduce the debt, it merely services it.

In a term most Coloradans can understand, James Biancho said our economy is “out over our skis.”

My conclusion: This economic cycle isn’t over yet. We have not solved our problems.

Read part II of Ann’s blog tomorrow.

What to ask before choosing your FEHB plan

1. Do you want an HMO, a PPO or FFS? This affects your flexibility in choosing doctors, specialists and facilities.

2. Do you want a traditional, consumer-driven or high-deductible health plan? Choosing the appropriate plan can save you valuable dollars.

3. How healthy are you? Does anyone in your family have a chronic health condition?

4. Premiums – How important is cost to you? Remember, your annual healthcare costs are more than just premiums – they include out-of-pocket expenses, too. The right to go to your current physician may be more important than premium costs.

5. What is your maximum annual out-of-pocket exposure? Look beyond the limit explained in the Outline of Coverage for hidden costs such as deductibles or co-pays that do not count toward the annual limit.

6. How is hospitalization covered? Normally this question get asked as you’re on the way to the hospital.

7. Do you need a referral to see a specialist?

8. Which of these services do you want covered? Well-child visits, Annual OB/GYN, Maternity care, annual physical, Chiropractic care, Mental health, Physical therapy, Health programs, Prescription drug coverage, dental coverage.

Do you have more questions? Give me a call at 303-922-4304, or email me at ann@annvanderslice.com.