Stock Market at a 4-year High… Again…

23 08 2012

While it has been an unusually long pause between market updates this time, I can assure you that we were not asleep at the wheel. In this instance, no news was good news, as the stock market has maintained its generally upward trend for the past several months with only moderate volatility for us to endure.

As of this writing, the United States stock market is approaching the high of 13279 on the DOW and 1419 on the S&P500 that it had previously reached on May 1st of this year, before the 10% correction that we went through during June and July. Since then, we have had generally uninteresting economic news on the domestic front, no real political unrest that has given us pause, and the Europeans continue to struggle through massive debt issues and one of the worst recessions that region of the world has had to face in several decades.

It can be easy to fall into the trap of thinking that “something good” must actually happen for the stock markets to go up. This is actually not the case. Given the fact that bond markets have gone up continually over the last several years, the current prices of bonds are so high, that most investors have begun to realize that future returns of the bond market are likely to be disappointing. We are beginning to see a shift of capital from what is historically an asset of moderate risk and return (bonds) to an asset class that historically has been riskier – but is currently acknowledged to be undervalued (stocks – especially blue chips).

As a result – nothing spectacular is happening in the economy to move us measurably forward, but as money shifts from bonds to stocks (or from sideline cash to stocks) – the price of stocks will tend to move up simply as a result of supply and demand. In other words – beause more and more investors are dissatisfied with the expected returns from bonds in the forseeable future – stocks seem like a more attractive alternative, especially for long-term investors. The current owners of the stocks must be convinced to sell them – and this “convincing” is done by investors paying higher and higher prices for the stocks over time.

Approaching a new or previous high is not without danger, however. Those who have invested for a while also understand that when the market approaches a previous high mark, it may fail to break through – almost as if an invisible lid has been placed upon the market itself. Sometimes, even in bull markets, the market must pull back and “take a new run” at the “lid” to break through. Currently the market does not have a great deal of momentum; while investors are buying stocks, they are not doing so with enough gusto or wild abandon for us to be convinced that a breakthrough will occur. So… a potential correction may be in store for us.

As we have mentioned before, we are of the belief that the stock market will likely remain in a “trading range” for several years – with a slight slant to the upside (just enough to make investing worthwhile, I suspect) but not a roaring bull market that we enjoyed after the last recession. Instead, we are likely to enjoy several months of upmarkets, followed by several months of downmarkets… squeaking out 7 to 8% returns on an annualized basis, and paying for it with a good bit of volatility and lack of market direction. Dividends will likely play a significant role in creating portfolio growth. We have adjusted portfolios to try to maximize investor returns (within risk tolerance) for this scenario, and continue to admonish patience.

Most experts believe that we are unlikely to see any real economic or fiscal news between now and the election. While it is possible that world events may cause unrest, or that some good news may come out of Europe that bolsters markets for a while, in general it seems that most institutional investors are in a “wait and see” mood. Market movements, however, can give some insight into likely election results. A strong stock market during an election year has historically increased Presidential approval ratings and would likely increase the chance of the current President being reelected. If, on the other hand, the market should falter between now and November, incumbent approval ratings are likely to decline, thus increasing the odds of the Romney/Ryan ticket being successful on election day.

Jon Castle

This blog is for informational purposes only.  This is neither an offer to purchase nor sell any securities.  All investing involves the potential of loss – including invested principal.  Indices quoted are general barometers of security price movement.  You cannot invest directly in an index.  All information is obtained from sources deemed reliable but not guaranteed.  Past performance is not a guarantee of future performance.  No tax or legal advice is given nor intended.

Investment advisory services provided by Paragon Wealth Strategies, LLC, a registered investment advisor.

10245 Centurion Pkwy. N. Ste 105, Jacksonville FL 32256   (904) 861-0093  Certified Financial Planner Board of Standards Inc. owns the certification marks CFP(R), CERTIFIED FINANCIAL PLANNER(tm) and federally registered CFP (with flame logo) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements


Should I Still Invest in a Crappy Economy?

20 09 2011

By Jon Castle, CFP®, ChFC®

It does not seem to matter who the potential investor is – whether they are already retired, are nearing retirement, or are a younger person with quite a bit of time until retirement… the question is often the same.  With interest rates being so low… with the markets unpredictible and volatile – what should I do?  The questions aren’t even really so straight forward as, “why should I invest my money now,” or “should I pay off debt first,” or even any of the other questions that, as a financial advisor for more than 15 years now, I’m used to getting.  The questions I am hearing now seem to have taken on the tone of confusion, despair, and a lack of direction, versus the questions I used to get such as “how should I invest,” or”what type of account – a Roth or a traditional IRA – should I have?”

Yesterday, when talking to a rather successful, nearly retired client on the telephone, she mentioned that she feels that she always has to take two steps backward for every three steps forward, and ideally, she would rather not see her account fluctuate at all once she retires next year.  “Isn’t there just something we can do with our money to earn a steady 6-8% or so with no risk?”  Unfortunately, the answer is NO.  While there might be many product salesmen out there who will try to convince you otherwise – the answer is still NO.   If there were -then all the institutions and large organizations in the world, who spend millions and millions of dollars trying to find or design such assets would have already found them.  A classic example of people and institutions trying to get outsized returns with no perceived risk is the recent mortgage debacle, and we saw how that turned out.

So – back to the original question – With the Economy on shaky footing (to say the least) and with the markets being… unusually volatile, to put it lightly – what should I do?

To answer this question, I had to turn to the history books, tenured academic research, and even some new research – but I think I found the answer.  Do EXACTLY what you have been told to do throughout the years.  Live below your means – save a portion of your income (assuming you are working and saving for retirement) and invest in a fully diversified portfolio designed specifically for your risk tolerance.  In fact – it is having the GUTS to invest during times like these that separate the winners from the… folks who wish they had as much money as the winners.

Last year, Dimensional Fund Advisors tapped into the database held at the Center for Research in Security Prices (CRSP) at the University of Chicago – the nexus of more Nobel-Prize winning research in economics than any other institution on the planet – to identify IF there was a direct correlation between a poor economy (as defined by low GDP) and poor investor returns.  In other words – SHOULD I STILL INVEST IN A CRAPPY ECONOMY?”

The Dimensional Study started by taking all of the world’s developed economies, examining their annual GDP growth from 1971 – 2008, and dividing them into two groups – High Growth, or Low Growth – for each year.  Clearly, much of what we hear on the news is about GDP growth – is our economy growing or not?  The higher the economic growth, the better – as this means reductions in unemployment, increases in personal wages, and, generally, a feeling of well-being, versus the cloud of general malaise that seems to have decended upon the world as of late.

Once the economies were divided into High Growth and Low Growth – the performance of their stock market indices was compared to their GDP Growth.  The question:  Does a poor economy (low GDP Growth) accurately predict poor investor returns?  The question was not – can an investor perform poorly during low-growth times (of course, we know that is possible) – but is there a clear and determinable correlation between a bad economy and a bad investor experience?

Oddly enough – the answer is NO.

                              AVG GDP                      AVG RETURN              Risk (Std Dev)

High Growth               0.92                             12.90%                          23.07

Low Growth               -4.02                            13.52%                          23.04

The data for Emerging Markets was similar, but quite honestly, the data for Emerging Markets only went back to 2001, and I felt this was just too short a time period to draw any reasonable conclusions.

When I first saw the data, I thought… well… this might be a sales pitch just to keep investors invested… we are still looking back only as far as 1971.  What about other periods of lousy growth?  And what about for the US in particular?  I wanted to check the data myself.  So, I delved into the CRSP database myself, using the French and Fama indices that go back as far as 1926, and to the Bureau of Economic Analysis (BEA.GOV) and compared hypothetical investor returns to the GDP growth (or lack thereof) during the 1970’s and during the Great Depression.

One particular period of interest to me was the years from 1972 to 1982.  Yes, this was after 1971, but I wanted to look at it further and in more depth from a portfolio manager perspective instead of just looking at the stock market.  How did it feel?  Remember the oil embargo?  Our defeat in Vietnam? The Cold War?  Carter’s “Misery Index?”  Double Digit Inflation?  During this period of time, the average GDP Growth was only 2.7% – well below the historical average of 3.4%.

The second period of interest was the period of the Great Depression.  Now the Great Depression itself lasted from 1929 to 1941 – but for this particular exercise, I wanted to look at the period starting about 2 and a half years AFTER the crash – starting with the summer of 1932 until the attack on Pearl Harbor, or December 1941 – the long, grinding years of the Depression.  During that period of time, our average GDP Growth was only 2.0% – the longest and weakest period of below-average growth on record for the United States.

My question was – how could today’s investors, using a properly designed, diversified portfolio,  have done during that time?  Were these two periods of time – arguably the worst periods (economically) in the past hundred years – a bad time to be invested?

Assume a relatively simple, domestic portfolio:  T-Bills (15%), 5-Year Treasuries (15%), US Large Stocks (11%), US Large Value, or underpriced, dividend paying stocks (21%), US Small Value Stocks (18%), US Small Stocks (10%), and Very Small, or Micro-Cap Stocks (10%).

Looking at the indices only (remember – there were VERY few mutual funds at the time of the Depression, and certainly no ETF’s,) we can get an idea of how an investor might have done.  The following numbers do NOT account for any fees, commissions, taxes, etc – but we can still draw conclusions.

From the period of 1932 – 1941, the above, simple, diversified portfolio (indices only) would have achieved an AVERAGE ANNUAL return of… wait for it… 19.29%!!  In fact one dollar invested as described above in the summer of 1932 would have grown to about $4.50 by December of 1941.  During the Great Depression!!

From the period of 1972 to 1982, the above, simple, diversified portfolio (indices only) would have achieve an AVERAGE ANNUAL return of… 14.82%!!  One dollar invested as described above in December of 1972 would have grown to about $3.49 by December of 1982.  During the Carter Years and the Misery Index!!

Were there periods of volatility, market corrections, and even stagnation in the investor’s portfolio?  Absolutely – in particular, a sharp market correction in 1936 would have scared out many undisciplined investors, and a particularly unpleasant 18 month bear market from 1973-1974 would have tested investor mettle.  But the facts remain – a fully diversified, properly balanced investor would have been able to achieve significant returns during those times.  In fact – there are a number of economic theories that suggest that investors who have the GUTS to invest (and remain invested) during these uncertain times are the ones who enjoy the GREATEST rewards.  These are the riskiest, most emotionally draining times to invest – as a result, the Capital Markets reward those investors more readily and more predictibly than the comparatively “timid” investors who only remain invested during the “good” times.

Today, the Fed and the International Monetary Fund (IMF) are projecting the US economy’s GDP growth to be about 2.7% for the next two years.  The media harps daily on the miserable shape of our economy, and politicians are using the economy as opportunities to further their agendas.  These are things that we must endure as a people, or change with our votes.

However – it is critical to SEPARATE our concerns about the economy – from our own INVESTMENT POLICY.  The two are NOT necessarily correlated.  A miserable economy – historically – does NOT mean miserable returns for an investor who is disciplined, creates a sound, diversified, low-cost investment STRATEGY with strict risk controls, and then implements it with courage and discipline.  In fact – it is EXACTLY these types of investors who have historically been the winners over the long term.


This blog article does not constitute legal, tax, or personal financial advice.  Please consult your own financial professional for personal, specific information.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP(R), CERTIFIED FINANCIAL PLANNER(tm) and federally registered CFP (with flame logo) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

Investment advisory services provided by Paragon Wealth Strategies, LLC., a registered investment advisor.

What’s Your Retirement Number? Higher than You Might Think!

7 09 2011

by Michelle Ash,  CFP®, CDFA™

As I start to write this article, I feel like maybe I should give readers a caution like you see at the start of some TV shows:  “The program you are about to watch contains disturbing images. Viewer discretion advised.”  This message is important!!!, but the telling of it isn’t necessarily going to be pretty.

Recently I have had the opportunity to experience a new phenomena in my career.  In the past couple of months, much by happenstance, our firm has had a number of younger individuals engage our services.  By younger, I mean they are generally of or near my own age demographic:  late 30’s to mid-40’s.  These individuals have generally been contemplating their future retirement, among other financial goals, and have hired us to put together a retirement plan to see how they’re progressing on that path.

Previously, our firm has primarily worked only with individuals ages 50 and above, who are often in what I call the “final chute” towards reaching retirement.

I have long observed the unpleasant circumstances that loom ahead for individuals who have not planned and saved well for retirement.  But since I was usually seeing those individuals at or near the age at which they had hoped to retire, I wasn’t necessarily able to understand what decisions might have led to their current status.

Having the opportunity to work with individuals who are twenty or even more years away from retirement, I can see the habits that cause success, or prevent one from achieving it.  In the process of that observation, I am also noticing an extremely disturbing trend.

The issue is thisI notice a general assumption that contributing the maximum funding to one’s 401(k) plan is all that really needs to be done to fund a retirement.

Now, I realize and agree that for some people, getting to the point where they can actually save $15,500 per year of their salary, the current maximum funding allowed for an employee under age 50, is a fabulous goal in and of itself.

But what bothers me is when I see individuals or couples making $150,000 per year, $200,000 per year, sometimes even more than that, and they think that just maxing their 401(k) is all they really need to do in order to be able to retire at age 60, live a long retirement, and have a lifestyle largely commensurate with that they currently live.

I guess I just have one thing to say to these people:  WAKE UP.  You are living in a fantasy, and if you stay there, the reality you are faced with once you get to retirement is NOT going to be a pleasant one.

Let’s run what I’ll call an “average” desired retirement.  It’s a standard many clients describe to me as “comfortable” but is certainly not lavish by most accounts.

• Retire at age 60
• Have $48,000 per year for expenses and budget needs (in today’s dollars)
• Have their house paid off by retirement
• Dollars for Property taxes, homeowner’s insurance, health insurance, and Medicare supplements are extra expenses above the base $48K
• Spend an extra $5,000 per year on travels or other hobbies while healthy
• Upgrade their vehicle every 7 years or so
• Have enough money to cover emergencies, home repairs, and medical emergencies
• Have enough money to last the rest of life no matter how long that lasts

After factoring in inflation, this scenario results in retirement costing approximately $96,000 in year one and $346,000 in the final year (assuming death at the age of 95).  Imagine if, just like going out to eat where your waiter hands you a final bill at the end of the meal for all of the different courses you ate, someone were to hand you the bill for your retirement at the very end of it.  If someone were to add up year by year the total cost of this retirement, the “number” that would result would be $8,905,800. **(Assumptions are listed below.)

Have you ever seen that commercial where people are walking around carrying their retirement “number”?  I have heard many people say they’ve been frightened by the size of some of the numbers.  Guess what – unfortunately those numbers can be very real!

Fortunately, there is a potential income source to help offset that need:  social security.  (As a sidebar, the cynical Gen X’er in me wants to say “yeah right, like we can count on that!)  We’ll assume there is no pension income, since a majority of Americans today, particularly younger ones, are no longer eligible for corporate pensions.  Using current rules, social security would account for approximately 39% of the overall need mentioned above. **

But that still leaves us over $5 Million dollars of future money needed in retirement that is unaccounted for.  This is not, of course – the “number” that needs to be accumulated prior to retirement, since accumulated dollars will likely earn a return during retirement.  However, it does accurately reflect the total likely cost of retirement – and can give insight to the size of the number which would need to be accumulated prior to retiring.

Let’s assume our hypothetical family has already saved $100,000 in 401(k)’s, which is the average amount we tend to see amongst individuals around age 40.  Solving this equation to determine how much money this family needs to save from this point forward, from age 40 until retirement at age 60, results in needing to fully fund each of their 401(k)’s at $15,500 per year each, PLUS save an additional $1,445 per month, or $17,340 per year.

Is this possible?  Especially if this requires them to save a good bit more than the maximum contribution allowed for most employer plans, it requires getting serious about their financial goals – and doing something about them – or… accepting something less.  Many people don’t like to hear advice like that, but please understand that it is not a judgment – it is just math.

I realize that at this point, some people reading this article might just want to throw in the towel and give up altogether.  As I said earlier, for many people, just getting to the point of contributing the maximum amount to a 401(k) can be a great goal.  I do not mean to diminish that accomplishment.  Ultimately, any savings you do will be better than nothing.  But what I do hope to do is cause people to realize that it takes a lot of hard work and a lot of saving to get to the point of a comfortable retirement.

With that in mind, my general suggestion to people working towards retirement, regardless of age, would be to save, save, and then save a little more.  That, or work with a CERTIFIED FINANCIAL PLANNER™ professional who can help you determine what your actual “number” is, and then make sure you’re doing everything you can to achieve it.

Expense Assumptions: 

  • House is assumed to be paid off prior to retirement.
  • Property taxes and homeowner’s insurance = $5,000 per year, inflating from today at 3.71%
  • Travel/Other Hobbies Budget of $5,000 per year inflates from today at 3.71% and ends at “advanced age” of 82 when many seniors no longer travel or pursue other hobbies as much.
  • Car upgrades begin in year 3 of retirement, occur every 7 years, and cost the equivalent of $20,000 today inflated at 3.71%.
  • Age at death = 95 for both spouses
  • Emergency savings, home repairs, and medical emergencies not accounted for since they are not quantifiable in this fact pattern.

Income Assumptions:

  • Social Security income is drawn at age 62 for both spouses.
  • Benefit amount = $18,960 per spouse, based on earnings that equal or exceed the current earnings cap of $106,800 throughout both spouses’ entire working history for 38 years (age 22 to 60).  (Source:
  • Inflation rate of 2.5% assumed on social security benefits, since Social Security benefits have not historically kept up with the rate of inflation.
  • Both spouses are assumed to live until the age of 95, meaning the family receives both social security incomes throughout retirement.

 Additional Savings Needed Assumptions:

  • Rate of Return = 7% annually.  This 7% is a mathematical figure, is hypothetical, and does not represent the returns of any particular investment or product.  Rate of return is applied to both existing accumulated dollars and future invested dollars.
  • Starting investment assets accumulated equal $100,000 in 401(k) plans.
  • Need reflected ($17,340 per year) is a total additional savings need , above 401(k) contributions of $15,500 per spouse ($31,000 total combined).  Total annual savings needed is therefore $48,340.
  • Investment time horizon:  Age 40 (current age) to age 95 (age at death).
  • Assets accumulated are assumed to be fully invested for the full lifespan of our hypothetical couple.  Both income and principal are consumed to meet retirement needs.

This blog article does not constitute legal, tax, or personal financial advice.  Please consult your own financial professional for personal, specific information.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP(R), CERTIFIED FINANCIAL PLANNER(tm) and federally registered CFP (with flame logo) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

Investment advisory services provided by Paragon Wealth Strategies, LLC., a registered investment advisor.

Should I wait to retire for bigger Social Security benefits?

2 06 2011

by Michelle Ash, CFP®, CDFA™

Along the road of life there are many milestone ages – age 16 to drive, age 18 to vote, age 21 to drink, and so on.  When it comes to thinking about retirement specifically, there are a number of milestone ages there too – at age 50 you get your AARP card (usually without requesting it), at age 55 you can take penalty-free withdrawals from an employer plan like a 401(k) if you are retired or separated from service, and at age 59-1/2 you can take penalty-free withdrawals from an IRA.  The BIG milestone that causes many people to stop and think, though, is the age of 62.  What happens then?  Well, under current laws, age 62 is the first time in which a worker or spouse can draw social security retirement benefits.

However, age 62 is sort of like the minimum entry point to social security retirement benefits.  Think of it in the same way as if you were buying tickets to a sporting event or concert:  you’ve got the base tickets that cost the least and get you in the door but you might be in the nosebleed seating section; and then you’ve got better seats which cost more.  With social security, if you want a “better seat” – meaning a bigger social security check each month – then your additional “cost” is waiting until a later age to draw the benefits.

In fact, for individuals reaching the age of 62 today, their Full Retirement Age (FRA) is age 66.  As it’s name implies, that’s the age at which full benefits have been earned.  For individuals born in years 1955 or later, the FRA age is even higher than 66.  Under current law, the maximum FRA age is presently 67.

You’re not limited to the choices of age 62 or your Full Retirement Age as your only two options, however.  You can choose to draw benefits anytime in between those ages.  There is a sliding scale of reduced benefits that applies.  If you’re mathematically-minded and want to figure it out for yourself, you deduct 5/9th’s of one percent for every month you draw the benefits early.  I’ll give an example of how to calculate it in just a moment, however if you’re not inclined to do the math yourself, you may want to visit the Social Security Administration’s website at  There you will find charts based on your year of birth that give you the exact percentage of benefit you would draw based on your age when you retire.  They break it down by month, so the data is very precise and helpful.

Here’s an example of how to calculate your social security benefit between ages 62 and FRA:

Jane wants to retire now at the age of 63.  Her Full Retirement Age is 66.  Her social security statement tells her that her FRA benefit is $2,000 per month.  If Jane wants to retire now at 63, she will multiply 5/9th’s, or 0.5555, times the number of months she’s retiring early.  In her case, it’s an even 36 months she’s retiring early.  So, Jane multiplies 0.5555 x 36 months = 20% (by rounding).  Jane multiplies that 20% times her FRA benefit of $2,000 and gets a reduction of $400/month.  So, her age 63 benefit will be $1,600 per month.

Factors to Consider

The numbers can give us a very monetarily-based answer, but like many things in life, the decision is often not quite so simple.  Consequently, very frequently we hear the question:  “Should I wait to retire for those bigger social security benefits?”

If Jane in our example knows her exact monthly budget and how much money she needs for her expenses every month, it might be very simple for her to decide whether the $1,600 per month benefit will be enough and whether to go ahead and retire.  But Jane might also look at things and feel like $400 per month of additional dollars, which she could have just by waiting three more years to retire, is an awful lot to sacrifice.  However, she also has to weigh in the fact that, during the three years between age 63 and 66 that she’s not receiving social security, that’s $1,600 per month that she’s not getting.  The question this often leads to is – “What’s my breakeven?”

Your Social Security “Breakeven”

Your breakeven is essentially the age at which the cumulative amount of extra money you got by drawing the benefit at an earlier age is equal to the cumulative amount of money you would have by waiting and getting a bigger benefit.  Generally, the breakeven is between 12 and 14 years after you began drawing early benefits.  What this means is that, if you believe you will live longer than 12-14 years in retirement, then you’ll have received more social security money by waiting to draw your benefit.  If you do NOT believe you’ll live that long and are planning to retire and no longer work, then you are better off drawing the benefit before your Full Retirement Age.

Continuing our example from before, Jane’s breakeven is exactly fourteen years.  At her age of 77, if she draws social security at age 62 and receives $1,600 per month, she will have received a total of $288,000 in benefits.  By comparison, if she were to wait until age 66 to draw her FRA benefits at $2,000 per month, she will have also received a total of $288,000 in benefits.  The real question then becomes – does Jane believe she’ll live beyond age 77?  If so, and if she wants a bigger paycheck, then she may want to wait.  If not, it may make sense to go ahead and draw benefits.

The Crystal Ball of How Long You’ll Live

I always find it interesting to discuss longevity, or how long you’ll live, with people.  Actually, the first hurdle is sometimes discussing it at all, since some people don’t even want to think about it.  But in my world of financial planning, at least in terms of social security benefits, it often becomes the critical question.  If we all knew exactly how long we’d live, it would be very easy to then figure out when to draw benefits to get the most amount of money from the program.  Most of us, though, don’t really have that crystal ball, or at least not one that’s real accurate.  How can you estimate?  Here are the factors I’d suggest considering:

1. Family Longevity – how long do the people in your family tend to live?  Are their health and circumstances similar to yours?  If so, this might be a good indicator.  If circumstances are substantially different, however, they might not be a good comparison.

2. Statistics – what do the mortality tables say?  Statistically today, according to data from the US Census Bureau (1), a man who is age 60 today can expect to live to the age of 80.9, and a woman to the age of 83.9.  Sadly, younger individuals today actually have a LOWER life expectancy, likely due to childhood obesity and other problems facing our nation.  That’s a topic for a different blog, however.

3.  Personal Circumstances – how’s your own health?  Do you take care of yourself by being physically fit and eating healthfully?  Do you control your stress levels?  Do you have balance to your life?  “Yes” answers to these questions may tend to lead to a longer life.  “No” answers may, though not always, detract from it.

Factoring in Social Security Rule Changes

Everything discussed so far is predicated on the current rules of the social security program.  Whether those rules will remain the same, however, is anyone’s guess at this point.  Certainly we hear about the program needing to change because it’s going broke.  Will it change?  Your guess is as good as mine.  Without knowing the future of social security, all you can do is decide what YOU think will happen, and take action accordingly.

Do you believe benefits may no longer be offered between age 62 and your Full Retirement Age?

Do you think your Full Retirement Age might be raised?

Do you think benefit payouts will be reduced?

If you’ve answered “yes” to any of these questions, then you may want to give serious consideration to drawing early.  On the other hand, if you are not bothered by these possibilities, and prefer to make the decision on your own terms instead of succumbing to fears, then you may prefer to wait and draw social security when you otherwise would.

Two Important Social Security Rules to Be Aware Of Before You Decide

Another factor that is extremely important to consider if you are thinking about taking social security benefits prior to your FRA is this:  are you completely finished working, or are you just retiring from one career and may start working another?  The reason this is important is because, if you draw social security between age 62 and your FRA, then any wages you make over about $14,160 per year cause your social security earnings to have to be given back.  The general rule of thumb is that you lose $1 of benefit for every $2 you earn.  In general, if you earn more than $55,000 in annual wages, you’ll have given back your whole social security benefit.  Since by drawing it early  you’ve already locked in a lower benefit, it makes very little sense to draw it and then give it back.  Don’t think you can hide the information from the Social Security Administration (SSA) either, as they and the IRS do share data.  If the SSA finds out money is owed back to them, they will deduct it from your benefits – in a hurry.

There are caveats to these statements:  you can proactively suspend your social security benefits  if you see this issue coming.  You should also know that social security gives you credit on your earnings record for the continued wages you’re drawing so that it benefits your social security amount.  All of those items are beyond the scope of this particular article.  Generally, it’s easier to avoid the whole issue up front.  However, if you’re already in the middle of such a situation, it may be a good idea to either do some online research on, or make an appointment with the folks at the Social Security Administration for individual guidance.

Another important factor to be aware of is that the benefit you draw at your Full Retirement Age is NOT the maximum benefit possible.  Under present laws, if you were to defer your benefits until after your FRA, they could continue to increase until age 70.  Here’s the lucrative part:  the benefit increase is currently a guaranteed 8% per year.  If you’re going to retire late, don’t need the money right away, or think you’ll have really long life span, this may be a great way to grow your benefit with absolutely no market risk.  Age 70 is the maximum age, though.  Beyond age 70 the benefits do not increase by waiting, so it does not make sense to defer benefits beyond that age.

Other Considerations and Where To Go From Here

There are MANY other strategies that financial planners such as myself have discovered and can apply to individual situations.  If you are married, there are factors regarding the age and work status for both you and your spouse that may be important to factor into your situation.  Unfortunately, many of those get too complex to go into here.

What’s my best advice if you’re still uncertain about when to draw benefits after everything you’ve read here?  Seek the help of a qualified retirement specialist like a CERTIFIED FINANCIAL PLANNER™ professional to help you figure it out.  You can research professionals in your area by visiting the CFP Board’s website at

Footnote (1):  Table 103. Life Expectancy, by Sex, Age, and Race: 2007.  Source: U.S. National Center for Health Statistics, National Vital Statistics Reports (NVSR), Deaths: Final Data for 2007, Vol. 58, No. 19, May 2010. See also


Disclaimer:  This blog article is not personal financial advice.  Please consult your a financial professional for personal, specific information.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP(R), CERTIFIED FINANCIAL PLANNER(tm) and federally registered CFP (with flame logo) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

Investment advisory services provided by Paragon Wealth Strategies, LLC., a registered investment advisor.

The 8%+ Solution*. Seriously??

8 03 2011

  by Michelle Ash, CFP(R), CDFA(TM)

 This past Friday evening, February 26th, I went to my local bank’s ATM to make an evening deposit.  It was about 8pm, it was dark outside, and clearly the bank itself had been closed for hours.  As I was waiting for the machine door to open to accept my envelope, a piece of paper folded up and taped to the ATM machine caught my eye.  It’s headline read,


“Finally, A Safe, Sensible Alternative to Money-Losing IRAs: The 8%+ Solution*”.

Being a financial advisor, and firm owner, this naturally caught my eye.  The paper was taped with one small piece of tape and was clearly meant to be taken by a curious passer-by, so I decided I’d take it.  Down below the headline, the 8 x 10 sheet continued to espouse all the almost-too-good-to-be-true features of this investment strategy, and then the contact information for the advisor who could be contacted about the investment; who is not affiliated with the bank, by the way.

You know what they say about things that seem too good to be true, right?

They usually are, and the same thing is true here as well.  Technically speaking, the author of the flyer did not make any inaccurate statements or tell absolute falsehoods.  However, as a fellow financial professional, I would tell you that he did make all sorts of misleading statements that appear to be intentially designed to cause a consumer to believe one thing – while the truth is actually another. 

Let’s look at some examples:

1. The footnote of the title, “The 8%+ Solution*” says “*8% is the highest income guarantee in the industry; actual accumulation amount could be greater.  **If you add an initial optional bonus of 8%, your first-year earnings could be at least 16%. Product is guaranteed and insured by an A rated insurance carrier. Minimum deposit is $5,000.”

Other examples:

“Want a retirement account that compounds at 8% a year guaranteed- no matter what happens in the market? (But it could be much more!)”

“Would you like a financial vehicle that will guarantee you income for the rest of your life? (And you can pass it on to your family!)”

To the left is a picture of the flyer.  I include it because it’s just got so many wonderful-sounding details.






Sounds fabulous, doesn’t it?  So, now let’s talk about the rest of the story.



First of all, what product is this advisor talking about?  Answer:  an equity-indexed annuity with a guaranteed income rider.  Now, that’s a mouthful of words that, unless you’re in the financial industry, probably sounds like I just spouted off in Greek instead of English.

So let’s break that down.  I’m going to try and keep this relatively simple, since this is a blog and not a white paper.  And trust me, you could write quite a lot to really give an explanation of these things.

Equity-indexed annuity: is an annuity product wherein your invested principal’s safety is guaranteed, and has a minimum guaranteed return (usually around 2%).  “Your” money is never invested directly in the stock market like it may be with a variable annuity or a mutual fund.  Instead, the insurance company invests your dollars in very safe vehicles like government treasuries, and then uses the interest from those to buy calls on a stock market index.  If the calls make money from the stock market going up, your account gets credited with a portion of the earnings.  If the calls don’t make money, your principal was never at risk so it’s still safe.

Guaranteed income rider:  There are several types of these, but this one is most likely a “GMWB” – a Guaranteed Minimum Withdrawal Benefit – an optional rider that can be purchased for an extra annual fee and “attached to” the base annuity contract.  In jest, sometimes we refer to this as “magic money”.  Think of it like this:  when you buy an annuity with this optional guaranteed income feature, your annuity actually has two values.  The first value is your account value – the one that represents your ACTUAL money in the account.  This is the money that you could actually take out if you decided to withdraw your money or cancel the contract (minus possible surrender fees, but that’s a different issue).

The second value your annuity has is the “magic money” guaranteed income bucket.   THIS value is the one that gets the “guaranteed” 8%  growth – NOT your account value.  The ONLY way to access this value is in one of two ways – either 1) by turning this “magic money” bucket into an income stream similar to a monthly pension, or 2) by taking a preset amount in the form of withdrawals over your lifetime – such as taking 5% annually off of the “magic money” bucket.

Still confused?  That’s common, so let’s do a simple example, using option number 2 (the GMWB option).

Let’s say I have $100,000 that I put in one of these contracts.  It has a guaranteed interest rate of 2%, but the opportunity to earn more if the stock market goes up.  I also buy (and pay for via internal costs) a guaranteed income rider with an 8% guarantee.

Now, let’s say that I hold the annuity contract for 10 years.  During that 10 years the stock market does really poorly, similar to the years 2000 – 2010, not even surpassing my 2% minimum guarantee.

My ACTUAL account with the 2% minimum guarantee grows to $121,899.  This is the money I could take out if I want (assuming all surrender charges are zero).

OR, instead, I can use my guaranteed income rider, which, with its 8% guarantee has grown my “magic money” to $215,892.  The amount of annual withdrawals I can make will be based on my age and published in the contract.  Let’s hypothetically say I’m age 70,  and because the insurance company has calculated my mortality, I may be able to withdraw annual amounts of 5% of my “magic money”.  If you multiply 5% by the “magic money” value of $215,892, you get an annual withdrawal of $10,794 – for life.  If I take more money out – it “blows up” the contract and my “magic money” pot will be severely penalized in some fashion, depending upon the individual company and contract.  At no time can I get the $215,892 at any one time – although, if I live for longer than 20 more years, I may get more than that amount – in annual withdrawals.

Still confused?  At this point, most people are.  Honestly – the vast majority of financial advisors and financial journalists do not understand these products – so misrepresentations tend to abound.

And so here’s the real crux of my issue with this advisor’s flyer:  these products are very, very complex.  If you take some of their different features individually in isolation and discuss them, they sound great.  You might even think that everyone should want one.  However, the real key to success is understanding how all of the features work TOGETHER.  Only then can a buyer have a true understanding of the pros and cons of the product.

At the end of the day, am I saying equity indexed annuities with guaranteed income riders are bad?  No.  Neither am I saying they are good.  They are just a tool.  Much in the same way that a carpenter probably doesn’t look in his toolbox and decide his hammer is “bad”, I am not looking at this annuity as “bad” or “good”.  Like the hammer, it’s just a tool.  A hammer may be great for pounding in nails to hang a picture, but I probably don’t want to use it to sand fine furniture.

The real problem I have with the flyer I found taped to my bank’s ATM machine is that advisors representing the financial industry are supposed to a) understand their products, b) represent them accurately, and c) only recommend them to individuals for whom they are suitable.  These are the mandates that state insurance commissioners, FINRA (the Financial Industry Regulatory Authority), and SEC (Securities Exchange Commission) oversee to try and prevent consumer abuses.

In my opinion, this advisor seriously misrepresented a product to try and make sales, and by doing so, he made our industry look bad by his misrepresentations.  I take serious issue with this.  And I bet the Florida Insurance Commissioner will too.


All investing involves the potential of loss – including invested principal.  Indices are general barometers of security price movement.  You cannot invest directly in an index.  Past performance is not a guarantee of future performance.  This message is NOT personal investment advice and should not be taken as such, nor is it a recommendation to buy or sell any security or insurance product.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP(R), CERTIFIED FINANCIAL PLANNER(tm) and federally registered CFP (with flame logo) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

Imvestment advisory services offered by Paragon Wealth Strategies LLC, a registered investment advisor.

Looking Forward to 2010!

12 01 2010

 By Jon Castle, CFP®, ChFC®

It is with a tremendous amount of optimism, hope, energy, and commitment that we at PARAGON feel as we look forward to 2010!  Those who know me well would NOT say that I am a rose-colored-glasses wearing optimist – but more of a pragmatic, “let’s move on with what we need to do” type of optimist.  No doubt, we as a society and as a nation have a good bit of work to do – but from a historical perspective, things have never been better.  I believe 2010 and the years beyond will be great, great years!   Despite the “Great Recession, as a human race, we are still undergoing the greatest creation of global wealth of all time.   New and previously unimaginable inventions are being made almost on a daily basis.   On a global scale, our collective knowledge is estimated to double every 11 hours within the next few years.1   And as Americans, whatever your political leanings or frustrations with our government or our health care system may be – you have to admit – things are even better here than in most other places in the world.

As far as the economy goes – Capitalism is still functioning.  The creation of wealth through innovation, invention and distribution of goods and services continues.  As 2010 unfolds, new inventions, products and services will be unveiled – as will the jobs and benefits that accompany them.  Economists who are “down in the mouth” about our future are looking rearward and crunching old numbers – but our world continues to march forward, and in most cases, the old math simply doesn’t apply.   Just to put this in perspective, I thought I’d take a little trip down history lane.  While I’m not a historian per se, I do enjoy drawing comparisons and parallels to what has happened in the past with what is happening now, or may be likely to happen in the future.  So, let’s have a look, shall we?

Today – most Americans enjoy luxuries beyond the imaginings of even the most powerful kings who ruled 500 years ago. Indoor plumbing.  Heated living quarters.  A car instead of a carriage.  Medicine and scientific health care, versus wizardry and leeches.  A life expectancy of 80 years instead of 45.  Great kings of yesteryear would sell their kingdoms in a heartbeat to live as an average family lives in America today!  Yet many people think we are “on the wrong track…”

Today – we hear and worry about the H1N1 Virus – the “Swine Flu.”  Yes, we should be concerned – so far, the CDC has reported 13,915 deaths from the Swine Flu (data as of 12/09/2009,  But consider this: In the summer of 1918 – only 92 years ago, the “Spanish Lady” flu swept through the world, killing 22 Million people across the globe. 22 Million people! From the flu!  One half of all of Philadelphia died!  One half of a US major metropolitan city wiped out from an illness!  The Spanish Lady killed 6 million more people than all of World War I!

Today – we text, e-mail, and call each other using cell phones anywhere around the globe.  We are frustrated whenever our e-mail doesn’t work, someone doesn’t return our text immediately, or we have to leave a “voice mail.”  Yet only 20 years ago – no one had cell phones, e-mail was brand new – and it was customary to handwrite letters which may (or may not) even reach our pen pal within weeks of sending them.  In 2010 the number one source of internet access will be… you guessed it… a cell phone which has ten thousand times more computing power than the entire world had in 1960!

Today – we can order a pizza online and have it delivered to our home in 30 minutes or less.  We shop online and are frustrated when it takes longer than 3 days to get our package or we have to pay for shipping.  Yet only 20 years ago, it was commonplace to order from the fall or spring Sears catalog, add money for shipping and handling, and wait up to 6 weeks for delivery – which was in the store and you had to go and pick it up anyway. Which I remember vividly from my childhood, by the way.

Here are some interesting bullet facts:

  • It took 38 years for radio to reach 50 Million people.  It took TV 13 years.  Facebook, however, added 100 Million users in 9 months!  If it were a country, Facebook would be the 4th largest country in the world!  For more info on that, check out this link: ·
  • Cars are being developed now that, once on the highway, will drive themselves in convoys with other cars.  Time to take a nap… on a long road trip! 
  • Thought controlled robotics have been invented, and initial uses are now under development.  Think of the applications for the handicapped!
  • In June of 2007, a patient successfully received a whole organ transplant – grown using her own stem cells and without the need for anti-rejection drugs. Can you IMAGINE the medical implications of this in 20 years?!?
  • Nerve controlled bionic arms and legs are now in prototype stage. Remember the $6 Million Dollar man? From the looks of it, it appears that he’s about 10 years away!
  • More video was uploaded to YouTube in the last 2 months – than NBC, ABC, and CBS have aired – since 1948! Collectively, the networks have been around over 200 years.  YouTube didn’t even exist 6 years ago.  The world is changing with incredible speed.  And finally – take a look at this video.  It truly is an example of the speed with which the world is changing.

Now what does this have to do with Wealth Management? Global wealth is primarily created through capitalism – where new ideas and products are capitalized by investors.   Many innovations come out of necessity – after recessions, when people turn to themselves for support, create new businesses and generate new ideas because their old paradigms failed to provide them what they needed.  Historically, the periods after recessions have been tremendously profitable ones.  Remember the 80’s boom after the recession of the 70’s?  Remember the 90’s boom after the recessions of ’91 – ’93?  We are now finishing up one of the worst recessions in a long, long time.  As the “Great Recession” winds down, I can only imagine the wonders that await us! 

Happy New Year, everyone! Hang on – I believe it will be a wild, wild ride!! 1 IBM Global Technology Services. “The Toxic Terabyte – How data-dumping threatens business efficiency.” July 2006

This blog is for informational purposes only.  This is neither an offer to purchase nor sell any securities.  All investing involves the potential of loss – including invested principal.  Indices quoted are general barometers of security price movement.  You cannot invest directly in an index.  All information is obtained from sources deemed reliable but not guaranteed.  Past performance is not a guarantee of future performance.  No tax or legal advice is given nor intended.

Investment advisory services provided by PARAGON Wealth Strategies, LLC, a registered investment advisor. 

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