Wealth Secrets of the One Per Cent: How the Super-Rich Became Uber Rich

The Telegraph article by Joe Shute,

Let us assume, dear reader, that you are interested in one thing, and one thing only: obtaining a vast fortune.” So begins economist Sam Wilkin’s new book, Wealth Secrets of the One Percent, on how the super-rich became just that. The “fortune”, Wilkin clarifies, is not the stuff of fancy cars and a holiday home on the Amalfi coast, but “yachts and personal helicopters, diamond-encrusted light fixtures, stately homes and private islands”.

The sort of fortune, in other words, available only to the world’s 1,826 billionaires and well beyond the wildest imaginations of the rest of us.

But Wilkin says he can change all of that. He has spent years researching the machinations of the uber-rich, and claims to have homed in on their wealth secrets. Pay attention, for this could be your chance to follow in the Italian leather-shod footsteps of the world’s wealthiest one per cent.

Get-rich-quick tomes are, of course, nothing new, and usually more common to a Waterstones bargain bucket than an oligarch’s bookshelf – if such a thing exists. However, what makes this book different is that Sam Wilkin is an inside man.

The 41-year-old is a senior adviser for Oxford Economics (one of the world’s foremost global research consultancies) and Oxford Analytica, which provides strategic advice to more than 50 governments across the globe. He works with some of the world’s largest companies and even the odd billionaire, although, unfortunately, he won’t say which.

Wilkin has previously written several economic theory books, but this one, published worldwide this month, is different. It zeroes in on how the wealthy made it and tries to answer the billion-dollar question “How can I get me some of that?”

We meet for dinner at a harbourside restaurant in Amsterdam. Wilkin is Buckinghamshire-born but lives in New York, and is travelling back via Holland after giving a lecture in China. From the book’s amoral money-grabbing tone, I am half-expecting a Wolf of Wall Street character to breeze in, perhaps arriving by launch from some distantly moored super-yacht.

Instead, I am greeted by a bespectacled figure in a suit crumpled by his long-haul flight. He prefers one glass of beer to a bottle of vintage champagne.

So the obvious question – one I am grilling him on before he has even buttered his bread – is exactly how does somebody (to take just a random example, say, a lowly paid journalist) become a billionaire?

The good news, first, is that it is getting easier. In Britain alone, the number of billionaires has increased from 53 to 113 in five years. For 2015, there are 290 newcomers on the Forbes global rich list.

“It’s easier than ever,” Wilkin says. “It’s the rise of the financial sector and fast-growing emerging markets. These are what an economist would call institutional factors.”

The book narrows the so-called wealth secrets down to seven, but for Wilkin only two really matter: eradicate the competition and take risks with other people’s money. He cites the example of Microsoft founder and richest person on the planet, Bill Gates, as somebody who managed to seize control of an entire market. Same, too, the lightning expansion of Google by Sergey Brin and Larry Page, and Mark Zuckerberg’s Facebook empire.

Wilkin compares this total control of markets by men who had barely finished their degrees to the robber barons of late-19th-century and early-20th-century America.

While the likes of Rockefeller, John Pierepont Morgan and Andrew Carnegie managed to hoover up the vast profits of industrialisation, a century on, a privileged few have similarly reaped the rewards of a new digital economy. Wilkin says the pharmaceutical and technology sectors are nowadays where the true money is to be made. This is what American investor Warren Buffett, the third-richest man in the world (net worth of US$72.3 billion – pounds 46.3 billion), refers to as getting in the right boat.

The other obvious way to have no competitors is to pick a place where nobody else wants to do business. “The best place to do business is really the worst,” he says. “You want a place that is so hard to do business in that nobody else can get one started.”

The most famous example of this, he goes on, was the Wild East of Russia during the Nineties, where men like Roman Abramovich (last week spotted sailing his 557ft super-yacht through the Western Isles) made their wealth.

By 2004, Moscow was home to more billionaires than New York, and this, more than ever, says Wilkin, is the wealth secret that dominates the rich list. The emerging markets of China, India, Brazil and Mexico are now home to almost one in four of the world’s billionaires.

But clearly, knowing where and how to operate is not enough. Personality is also key, and Wilkin believes there are obvious traits that unite a lot of the people in the book, going as far back as Marcus Licinius Crassus, the ancient Roman known as one of the richest men ever.

The corporate matiness of modern billionaires, as personified by Richard Branson chillaxing on his private island of Necker, masks a steely resolve. This is the main disclaimer for readers. “Knowing what you can do to be rich is not the same as being able to execute it,” warns Wilkin.

“These people tend to be pretty merciless, really competitive,” he says. “You have to go in willing to fight tooth and nail to be that winner, and be comfortable and untroubled by wiping everybody else out.”

Wilkin talks about the “hard-charged testosterone environment” of modern-day financiers, resting on ego and still very much a man’s world.

Another uniting trait he has noticed is that billionaires tend to declare their financial objectives as young children.

“Bill Gates did it to his high-school friends. Andrew Carnegie, too. Having the objective just to have money is a major driver.”

The economist himself comes from normal middle-class stock – his English father is a retired professor, his American mother a former librarian – and admits he is full of respect for the “amazing gumption” of your average billionaire. “It’s impossible not to admire these people,” Wilkin says.

“They are larger-than-life characters who have done amazing things.”

And what about him, I wonder. If he knows their secrets, why doesn’t Wilkin become a billionaire himself? He insists, in between sips of mint tea, that he has no desire for great wealth – mapping how it is made is interesting enough.

He says the “moneyed herd” of super-rich bankers and the like are a regular sight in Manhattan, but the endless desire to stay on top at all costs that unites so many billionaires is not for him. Happiness, he believes, should not depend on one’s bank balance.

Still, when I ask what he would spend his fictional billions on, it is impossible to ignore the glint in his eye. “Nothing ostentatious, but I would like to have a nice place in a few countries. Maybe Oxford, maybe New York, maybe Japan…”

And I wonder whether perhaps the one per cent may soon have another member.


Top Wealth Secrets

• Pick a field in which you can establish a monopoly, such as Mexican billionaire Carlos Slim, who took control of the country’s entire telecommunications market

• Expand as quickly as possible. Amazon eschewed early profitability to become the “everything shop” and, as a result, investors poured money in

• The worst place to do business is really the best. It is easier to dominate emerging markets thanks to the lack of competition

• Take risks with other people’s money: encourage investors

• Own your own business and property rights: Bill Gates’s Microsoft at one point had a 95 per cent share of the operating systems market

• Spin complex laws into gold: set up in industries bound by such convoluted regulation that it is easy to bend the rules that nobody understands

• Establish networks. Telecoms networks and shipping networks have created a lot of fortunes

– Wealth Secrets of the One Percent by Sam Wilkin is published by Little, Brown.


Three Retirement Loopholes Seen Likely to Close

Reuters news by Liz Weston

There are plenty of tips and tricks to maximizing your retirement benefits, and more than a few are considered “loopholes” that taxpayers have been able to use to circumvent the letter of the law in order to pay less to the government.

But as often happens when too many people make use of such shortcuts, the government may move to close three retirement loopholes that have become increasingly popular as financial advisers have learned how to exploit kinks in the law.

1. Back-door Roth IRA conversions

The U.S. Congress created this particular loophole by lifting income restrictions from conversions from a traditional Individual Retirement Account (IRA) to a Roth IRA, but not listing these restrictions from the contributions to the accounts.

People whose incomes are too high to put after-tax money directly into a Roth, where the growth is tax-free, can instead fund a traditional IRA with a nondeductible contribution and shortly thereafter convert the IRA to a Roth.

Taxes are typically due in a Roth conversion, but this technique will not trigger much, if any, tax bill if the contributor does not have other money in an IRA.

President Obama’s 2016 budget proposal suggests that future Roth conversions be limited to pre-tax money only, effectively killing most back-door Roths.

Congressional gridlock, though, means action is not likely until the next administration takes over, said financial planner and enrolled agent Francis St. Onge with Total Financial Planning in Brighton, Michigan. He doubts any tax change would be retroactive, which means the window for doing back-door Roths is likely to remain open for awhile.

“It would create too much turmoil if they forced people to undo them,” says St. Onge.

2. The stretch IRA

People who inherit an IRA have the option of taking distributions over their lifetimes. Wealthy families that convert IRAs to Roths can potentially provide tax-free income to their heirs for decades, since Roth withdrawals are typically not taxed.

That bothers lawmakers across the political spectrum who think retirement funds should be for retirement – not a bonanza for inheritors.

“Congress never imagined the IRA to be an estate-planning vehicle,” said Ed Slott, a certified public accountant and author of “Ed Slott’s 2015 Retirement Decisions Guide.”

Most recent tax-related bills have included a provision to kill the stretch IRA and replace it with a law requiring beneficiaries other than spouses to withdraw the money within five years.

Anyone contemplating a Roth conversion for the benefit of heirs should evaluate whether the strategy makes sense if those heirs have to withdraw the money within five years, Slott said.

3. “Aggressive” strategies for Social Security

Obama’s budget also proposed to eliminate “aggressive” Social Security claiming strategies, which it said allow upper-income beneficiaries to manipulate the timing of collection of Social Security benefits in order to maximize delayed retirement credits.

Obama did not specify which strategies, but retirement experts said he is likely referring to the “file and suspend” and “claim now, claim more later” techniques.

Married people can claim a benefit based on their own work record or a spousal benefit of up to half their partner’s benefit. Dual-earner couples may profit by doing both.

People who choose a spousal benefit at full retirement age (currently 66) can later switch to their own benefit when it maxes out at age 70 – known as the “claim now, claim more later” approach that can boost a couple’s lifetime Social Security payout by tens of thousands of dollars.

The “file and suspend” technique can be used in conjunction with this strategy or on its own. Typically one member of a couple has to file for retirement benefits for the other partner to get a spousal benefit.

Someone who reaches full retirement age also has the option of applying for Social Security and then immediately suspending the application so that the benefit continues to grow, while allowing a spouse to claim a spousal benefit.

People close to retirement need not worry, said Boston University economist Laurence Kotlikoff, who wrote the bestseller “Get What’s Yours: The Secrets to Maxing Out Social Security.”

“I don’t see them ever taking anything away that they’ve already given,” Kotlikoff said. “If they do something, they’ll have to phase it in.”

Source:  reuters.com


IRA distribution rules every retiree should know

Dan Caplinger, The Motley Fool

It takes most people their entire career to save up enough money to retire comfortably by using IRAs and other retirement accounts to help them make the most of their investments. Yet when it comes time to take money out of an IRA, failing to follow the rules can be a costly mistake. With that in mind, let’s take a look at the IRA distribution rules that most often trip up people and how you can make sure you follow them correctly.

When you can take money out of an IRA

The best-known rule about IRAs is that if you take money out too early, you’ll pay a penalty. The magic age for penalty-free IRA withdrawals is 59 1/2, but if you take withdrawals before that, you’ll have to cover a 10% IRS penalty on top of any tax liability you owe from any traditional IRA withdrawal that gets added to your taxable income for the year.

Note that there are a number of exceptions to the 59 1/2 rule that you can use to avoid the 10% penalty. Specifically, up to $10,000 of withdrawals you make to pay for a first-time home purchase, qualified educational expenses for yourself or your family, health insurance if you’re unemployed, and un-reimbursed medical expenses in some cases can avoid the 10% penalty. In addition, beginning a program of substantially equal periodic payments, or SEPP, also gives you penalty-free access to IRA money before reaching 59 1/2. But keep in mind that SEPP plans last a minimum of five years with no provisions for penalty-free cancellation of the program.

There’s also a tricky rule with Roth IRAs. Most of the time, distributions from Roth IRAs are tax-free. But even if you’ve turned 59 1/2, you might owe tax on a Roth distribution if you’ve had a Roth for less than five years. Even if that applies, though, the tax only affects incomegenerated from the Roth, leaving the original investment untouched.

When you must take money out of an IRA

Many retirees prefer to live off other sources of income, such as Social Security and employer pensions. As a result, they’ll leave IRAs untouched for as long as possible. For traditional IRAs, though, there’s only so long you can go without taking IRA distributions. The IRS requires minimum distributions, or RMDs, beginning at age 70 1/2.

To figure out how much you have to withdraw, you take your IRA balance as of the end of the previous year. You then divide the balance by a life-expectancy number from an IRS chart. The answer gives you the amount of your RMD for the year. If you don’t withdraw at least that amount, you’ll owe a 50% penalty on what you should have withdrawn. That makes it important to get started as soon as you’re required to.

Roth IRAs have no RMD provisions, however. That means you can leave Roth IRA money in your account as long as you want throughout your lifetime.

When your heirs must take IRA distributions

After your death, a new set of IRA distribution rules applies to your retirement account.

Generally, anyone who inherits IRAs have a couple of choices. First, they can extend IRA withdrawals over their life expectancy, with required minimum distributions of their own kicking in immediately. Alternatively, they can take a lump-sum payment, or, in some cases, they can take distributions over a five-year period. Each of these provisions is designed to ensure that the IRA doesn’t go on forever, although life-expectancy-based payouts can keep a retirement account going for decades beyond your death.

If you’re married, your surviving spouse has two options: either roll over your IRA into the spouse’s own IRA, or to follow the same rules that apply to non-spouse IRA beneficiaries.

One thing to remember is that if the original IRA owner died before taking out the required minimum distribution for the year, the heir will immediately need to take out the RMD amount. Failing to do so causes the same 50% penalty that applies during the IRA owner’s lifetime.

After spending so much time and effort saving for retirement, the last thing you want to do is to make mistakes when you withdraw your hard-earned money from an IRA. By knowing the IRA distribution rules, you can make sure that as much of your savings as possible goes toward what you want.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.


How Much is Too Much to Leave Your Kids?

Article by Pamela Yip

Imagine that you’re a self-made person with $100 million in assets.

Do you leave it all to your children?

A coming inter-generational shift in wealth raises many issues for rich families, including how much to give children without doing more harm than good.

Financial advisers say the affluent families they deal with are most concerned with ensuring that their wealth doesn’t snuff out their children’s sense of purpose, ambition and desire to make the world a better place.

“Being a child of wealth shouldn’t be a burden,” said Robert Johnson, regional managing director at the Private Banking & Investment Group of Merrill Lynch in Dallas, “but sometimes it is.”

In a national study of 206 affluent parents in October, Merrill Lynch found that most people plan to leave the lion’s share of their wealth to family members, motivated by a desire to positively influence the lives of loved ones.

Given the amount of wealth that’s expected to be transferred to the next generation, more families will need to be discussing this.

“While the ‘Great Transfer’ (of wealth) from the Greatest Generation to the baby boomers is still taking place, a second and even larger wealth transfer from the boomers to their heirs is starting now and will continue over the next 30 to 40 years,” consulting firm Accenture said in a 2012 report.

“While the Great Transfer will see an over-$12 trillion shift, the ‘Greater’ wealth transfer is much larger, estimated at over $30 trillion in financial and nonfinancial assets in North America,” Accenture said.

So how much is too much to give your child?

There’s no magic number, but Merrill Lynch draws the line at “when the money creates a disincentive to achieve one’s full potential.”

“Too often, people think only about dollar amounts, not impact, when deciding how much is too much to give,” said Michael Liersch at Merrill Lynch Wealth Management. “There is no silver-bullet answer or one-size-fits-all approach to gifting assets. The process of meaningful, intentional giving, whether to family, friends or philanthropy, should be highly personalized. It requires honesty, humility and a willingness to face this all-important topic head-on.”

Bankers who work with the wealthy said they try to help families more clearly define what they want to pass on to their children.

“The first step in that is to really look at the overarching question of what do you want your legacy to be,” said Pete Chilian, managing director of the J.P. Morgan Private Bank in Dallas. “Perhaps the most challenging part in that is how much to give away during your life.”

Many wealth advisers also offer programs for young heirs on financial stewardship and money management.

“Even though some of them don’t have an aptitude or an inclination to learn about money management, it’s still important that they’re financially literate before finding themselves with a significant amount of wealth,” Chilian said.

Many families will form a foundation and have their children serve on the board so they can get their philanthropic feet wet, Johnson said.

“The thing that high-net-worth people worry about is that the money ruins children instead of enriching their lives,” he said.

That’s something that all of us want for our children, no matter how much money we will pass to them — for them to grow up to be productive, self-sufficient individuals wanting to better society.

Source:  postbulletin.com


15 Ways to Retire Early

Huffington Post article by Lou Carlozo

retirement-The word “retirement” and number “65″ are as linked in the American psyche as “bacon and eggs.” Then again, that all depends on how fast you want your eggs, right?

Retiring early — or leaving the work force for the golf course, if you like — might sound like an unattainable goal. That’s especially true if you look at the challenge from a pure cash paradigm. But there are many ways to make it, so long as you take numerous approaches into account.

Yes, 65 is the standard — but what’s 21st century life all about if not exceeding standards? Here are 15 major financial and lifestyle moves you can make to achieve this goal.

1. Live Two to Three Times Below Your Means

Sorry, folks: Simply skipping that $4 latte in the morning ain’t gonna cut it. It takes a much more committed approach where “sacrifices” are viewed in a new light. “It’s amazing when I work through the numbers that some people think manicures, landscapers and maids are a need,” said Michael Chadwick, a certified financial planner and CEO of Chadwick Financial Advisors in Unionville, Conn.

2. Redefine ‘Comfortable Retirement’

Less spending later constitutes the flip side of less spending now. If you imagine comfy retirement as a vacation home and monthly cruise ship trips, revisit that vision so you don’t have to bleed cash — but can still retire in style. Instead of two homes, for example, why not live in your vacation destination and pocket the principal from selling your primary residence?

3. Pay Off All Your Debt

That’s right, all of it. First: Is it time to pay off your home? You might not have the resources now to plunk down one huge check, but consider savvy alternatives such as switching from a 30-year to 15-year mortgage. Monthly payments aren’t much higher, but the principal payoff is much greater. Second: Do the same with loans and credit cards, as high interest eats up income faster than termites chewing a log. A credit card balance of just $15,000 with an APR of 19.99 percent will take you five years to eradicate at $400 a month — and you’ll dish out a total of $23,764.48, the calculator on timevalue.com shows.

4. Consider Overlooked Financial Resources

While it’s risky to count on unknowns such as an inheritance, you might have cash streams available outside the traditional retirement realm, said Jennifer E. Acuff, wealth advisor with TrueWealth Management in Atlanta. For example, “Understand your options with respect to any pensions you might be entitled to from current or previous employers.”

5. Invest Early and Aggressively

If you’re in your 20s and start investing now, you’re in luck, said Joseph Jennings Jr., investment director for PNC Wealth Management in Baltimore. “Due to the power of compounding, the first dollar saved is the most important, as it has the most growth potential over time.” As an example, Jennings compares $10,000 saved at age 25 versus 60. “The 25-year-old has 40 years of growth potential at the average retirement age of 65, whereas $10,000 saved at age 60 only has five years of growth potential.”

6. Married Couples: Play Retirement Account Matchmaker

The wisdom of taking advantage of a company match on the 401(k) is well established — but think about how that power is accelerated if a working couple does it with two such company matches. “If your employer has a matching contribution inside of your company’s plan, make sure you always contribute at least enough to receive it,” said Kevin J. Meehan, regional president-Chicago with Wealth Enhancement Group. “You are essentially leaving money on the table if you don’t.”

7. Practice Sound Cash Flow Management

The methodology is simple, yet the results can be profound: Put money at least monthly into systematic investments during your working years. “There’s no other element of investment planning or portfolio management that’s more essential over the long term,” said Jesse Mackey, chief investment officer of 4Thought Financial Group in Syosset, N.Y.

8. Jump on Employer Stock Purchase Plans

How about some free money? The ESPP typically works by payroll deduction, with the company converting the money into shares every six months at a 15 percent discount. If you immediately liquidate those shares every time they’re delivered, it’s like get a guaranteed 15 percent rate of return,” said Dave Yeske, managing director at the wealth management firm Yeske Buie and director of the financial planning program at Golden Gate University. “Add the after-tax proceeds to your supplemental retirement savings.”

9. Start That Retirement Account Today

That is, the earlier the better. Millennials who kick off retirement accounts early will reap big rewards later. A 25-year-old who socks away $4,000 a year for just 10 years (with a 10 percent annual return rate) will accrue more than $883,000 by the time she turns 60. Now then: Can’t you just taste those pina coladas on the beach?

10. Plan Smart Vacations and Travel — and Invest the Difference

There’s no sense in depriving yourself of every single thing, especially well-deserved time off. But Yeske points out that you can save a ton in 150 countries through a service called HomeExchange.com. “My wife and I have stayed for free in London, Amsterdam, New York and Costa Rica,” he said. “And when you’re staying in someone’s home or apartment, you don’t have to eat out at a restaurant for every meal, so your food costs nothing more than if you were at home.”

11. Don’t Let Your Money Sit Idle

To get to an early retirement, you have to periodically revisit your IRA, 401(k) or other retirement account to make sure your money doesn’t grow cobwebs. For example, the way your retirement account is diversified shouldn’t put too much emphasis on low-yield investments — such as money market funds and low-yielding bonds. “Dividends can pile up in the money market account, typically earning one one-hundredth of a percent,” Yeske said. “Make sure your cash is invested properly.”

12. Hop off the Hedonic Treadmill

In this curse of consumerism, you buy something expensive, feel excited and then scout for something else to purchase when the “new car smell” wears off. And it’s a huge trap if you want early retirement, said Pete, a finance blogger who retired in his 30s. Another advantage: “Here in the rich world,” he wrote at MrMoneyMoustache.com, “the only widespread form of slavery is the economic type.”

13. Look for Passive Sources of Income

Early retirement doesn’t necessarily mean retiring all of your income, especially if you find ways to bring in money without hard work. Investing in rental properties is one way you can create a cash flow stream — and you can minimize the labor by hiring a property manager. Or: Set up an internet sales business and hire a part-timer to fulfill orders and track stock based on volume.

14. Enlist in the Armed Forces

Here’s an alternative way to get to “At ease, men.” By serving in the military, you can also serve yourself. Members commonly retire after 20 years, living off generous pensions and health insurance. Even though President Obama in March proposed sweeping changes to military retirement and health benefits, earlier-than-normal retirement should still remain an option for many men and women in uniform.

15. Hit the Road or Go Jump in a Lake, Indefinitely

Some middle agers are selling the bulk of their possessions — including the home — and moving into tricked-out mobile homes and houseboats. These options also open the door to a life of leisure travel and can eliminate major expenses, such as property taxes and mortgage payments.

If you think of retiring early as simply walking away from everyday life — and thus a pipe dream — it’s time to take a step back and look at how others have done it. You might enjoy your job immensely and have friends in the trenches with you. But if work is taking too much away from your family time, community bonds, overall health and peace of mind, you might do well to consider one of the smartest alternative investments of all: yourself.

Source: huffingtonpost.com


Even Coin Collectors Have Given Up on Gold


Finding bullish gold investors is getting a lot harder, even in a place where demand has been almost a given in recent years: precious-metal coins.

Customers who were buying even as gold began slumping in 2013 are now so scarce at the Bullion Trading LLC shop in New York that owner Isaac Kahan says sales in May tumbled 35 percent. Purchases of American Eagle gold coins from the U.S. Mint, the world’s largest, were the weakest for the month in eight years. And global coin demand this year probably will slump to the lowest since 2008, TD Securities Inc. predicts.

“Some of the coin buyers are the diehard believers in gold, and seeing them stay away from the market means their faith may have been shaken,” said Phil Streible, a senior market strategist at RJO Futures in Chicago who has been following prices for 15 years. “Demand for all kinds of physical gold products has taken a hit.”

Bullion prices have been trapped in a bear market the past two years as inflation concerns proved overblown and U.S. equities and the dollar rose to records. Holdings in exchange-traded products backed by gold are the smallest since 2009, and global jewelry demand has petered out. With coin buyers heading for the exits, there aren’t many places left to find a bull.

‘Complete Capitulation’

“What we are seeing is complete capitulation,” said Rob Haworth, a senior investment strategist in Seattle at U.S. Bank Wealth Management, which oversees about $128 billion and is underweight in commodities, including gold. “Physical demand is very weak, and that lends to our expectations of lower prices.”

That marks an abrupt about-face for gold after jumping to a record $1,921.17 an ounce in September 2011. Buyers were betting that U.S. interest rates near zero percent would erode the value of the dollar and accelerate inflation. Instead, the U.S. currency surged and inflation was muted as energy and food costs fell. Futures were down 0.3 percent this year at $1,180.40 on Thursday on the Comex in New York.

Coin lovers were among the most optimistic. When gold plunged 28 percent in 2013, they expected prices to rebound and started buying. U.S. Mint sales rose 14 percent that year as the metal presses worked overtime. Since then, futures are down 1.8 percent and Mint sales fell 39 percent last year.

Cheap Hedge

Retail investors looking for gold as a hedge have been drawn to coins because they cost as little as $141 for a 1/10th-ounce American Eagle, compared with forking over $3,000 for a 100-gram bar or about $118,000 for a single futures contract. Coins account for about 6 percent of global gold demand, according to Barclays Plc.

Gains for the U.S. economy have eroded the need for gold as a haven and pushed Federal Reserve policy makers closer to raising interest rates. An increase in borrowing costs would further diminish the appeal of bullion, since it doesn’t pay interest like competing assets, such as new bonds.

Global demand for gold coins will slide 12 percent this year to 220 metric tons, the lowest since 2008, according to Bart Melek, the head of commodity strategy at TD Securities in Toronto. U.S. Mint sales of American Eagle gold coins fell to 21,500 ounces in May, and sales in the first five months of the year were 9.4 percent below 2014.

Bulls Remain

Not everyone is bearish. Bank of America Corp. expects prices will average $1,248 this year, and climb to $1,338 in 2016. The bank doesn’t expect Fed policy makers will be “aggressive” when it comes to raising rates, which will help to support prices, analysts led by Michael Widmer reiterated in a May 30 report. HSBC Securities (USA) Inc. and Commerzbank AG are also forecasting gains.

For coin dealers, there’s no sign of improvement. At Bullion Trading in New York, Kahan says he has reduced prices from a year earlier by as much as 5 percent since the start of 2015. It is the first time he’s done that since he opened the shop in 2007.

“Business started slowing down last year, but we did not expect it to last this long,” said Kahan, 48, who has been in the gold business for 25 years. “The discounts have helped attract more buying from some customers, but nothing significant.”

Global Slump

The slowdown isn’t unique to the U.S. Gold sales from Australia’s Perth Mint, which refines all the bullion output from the world’s second-biggest producer, tumbled in May to the lowest in three years. Global demand for jewelry, coins and bars fell 5 percent in the first quarter from a year earlier as shoppers in the Middle East and China reined in purchases, the World Gold Council said May 14.

“Business for bullion is like a deer in headlights — it’s not moving,” said Richard Nachbar, who has been in the gold business since 1973 and founded Williamsville, New York-based Richard Nachbar Rare Coins.


5 Surprising Facts about IRAs

Individual retirement accounts allow you to claim a tax break while saving for retirement, which makes them an ideal place to stash your nest egg. Americans have funneled trillions of dollars into these tax-deferred accounts since they were created in 1974, both through direct contributions and rollovers from workplace accounts. Here’s a look at how much workers are depositing in IRAs.

The average balance tops $100,000. Individuals held an average of $119,804 in their IRAs in 2013, according to an Employee Benefit Research Institute analysis of 25.8 million IRAs holding $2.46 trillion in assets. And the top 12 percent of savers have over $250,000 stashed in IRAs, up from 9 percent in 2010. “The increases found in the average balances in 2013 are likely to continue, as is the importance of IRA assets for individuals during retirement,” says Craig Copeland, a senior research associate at EBRI and author of the report. However, the median (mid-point) IRA balance was just $32,179 in 2013. And 45 percent of those with IRAs have less than $25,000 in their accounts. Unsurprisingly, IRA balances increased with age, from a median of $3,708 for those under 25 to $75,627 for people ages 70 or older.

Many people max out their IRA. The average IRA contribution increased from $3,335 in 2010 to $4,145 in 2013. And 43 percent of investors who saved in an IRA contributed the maximum possible amount in 2013. The proportion of IRA account owners contributing the maximum peaked at 53 percent in 2012 before falling in 2013, likely due to an increase in the IRA contribution limit. The IRA contribution limit is $5,500 in 2015, and increases to $6,500 for those ages 50 and older.

Most contributions originate with 401(k)s. Much of the money held in IRAs was first saved in workplace retirement plans, and then rolled over to an IRA. “With growing 401(k) plan balances and IRAs being a popular destination for 401(k) assets when people change jobs or retire, the amount of income derived from IRAs will grow significantly,” Copeland says. The average rollover to a traditional IRA was worth $96,660, and the median rollover amount was $27,967 in 2013. Three-quarters of rollovers to IRAs were worth more than $5,000, and 9 percent of workers shifted over $250,000 to an IRA. EBRI found that 14.5 times more dollars were deposited in IRAs via rollovers than contributed directly to IRAs.

Roth IRAs are more popular than traditional IRAs. More contributions were made to Roth IRAs than traditional IRAs in 2013. You can’t claim a tax deduction for Roth IRA contributions, but withdrawals in retirement from accounts at least five years old are tax free. Roth accounts are especially popular with young workers. Nearly a quarter (24 percent) of Roth IRA contributions are made by investors ages 25 to 34, compared to 7.5 percent of traditional account deposits by people the same age. The average Roth IRA contribution of $4,009 is smaller than the $4,338 average contribution to traditional IRAs. However, the $6 billion contributed to Roth IRAs is substantially more than the $4.61 billion deposited in traditional IRAs due to more people contributing to Roth accounts than traditional IRAs.

IRA balances have largely recovered from the recession. The average IRA balance declined from $91,864 in 2010 to $87,668 in 2011, but then climbed back up to $119,804 in 2013. That’s a 30 percent increase from 2010 to 2013, which reflects both investment gains and new contributions. The median account balance dipped from $25,296 in 2010 to $23,785 in 2011 before increasing to $32,179 by 2013.


New Math for Retirees and the 4% Withdrawal Rule

NYT article by Tara Siegel Bernard

More than two decades ago, Bill Bengen, then a financial planner in Southern California, said he had several anxious clients with the same question: How much can I spend in retirement without running out of money?

Being relatively new to the profession, he dived back into his finance textbooks for answers, but said he couldn’t find any guidelines rooted in facts. “I decided to get down to business with my computer,” said Mr. Bengen, 67, who retired in 2013 and now lives with his wife in La Quinta, a resort town in California’s Coachella Valley.

What he and his computer produced, in 1994, became part of the financial vernacular and is still the most widely referenced rule of thumb. Known as the 4 percent rule, it found that retirees who withdrew 4 percent of their initial retirement portfolio balance, and then adjusted that dollar amount for inflation each year thereafter, would have created a paycheck that lasted for 30 years.

The concept has been both celebrated and criticized, and it has recently come under scrutiny yet again, particularly as the current crop of retirees are entering retirement during a period of historically low interest rates. But the question of how much they can safely spend each year may be more important than ever: Roughly 11,000 people, on average, are expected to turn 65 every day for the next 15 years, according to the Social Security Administration.

“I always warned people that the 4 percent rule is not a law of nature like Newton’s laws of motion,” said Mr. Bengen, who graduated from the Massachusetts Institute of Technology with a bachelor’s in aeronautics and astronautics in 1969. “It is entirely possible that at some time in the future there could be a worse case.”

Mr. Bengen’s original analysis assumed the retirees’ portfolio was evenly split between stocks and bonds, and he tested whether the paycheck could persevere through every 30-year period dating from 1926. It succeeded.

The big question now — difficult even for an aerospace engineer to answer — is whether a new worst case is beginning to play out, given the painfully low interest rate environment, which yields little for safer bond investments, where retirees often hold a big portion of their money.

“Because interest rates are so low now, while stock markets are also very highly valued, we are in uncharted waters in terms of the conditions at the start of retirement and knowing whether the 4 percent rule can work in those cases,” said Wade Pfau, a professor of retirement income at the American College of Financial Services and another researcher within the financial planning community.

Since Mr. Bengen’s original paper was published, the 4 percent concept has been replicated, expanded, criticized and even refined by Mr. Bengen himself. (By using a more diversified portfolio, he later raised the rate to 4.5 percent.)

Critics of the rule point out that it is based on conditions in the United States during a very specific time in history; it also doesn’t take into account items like investments costs, taxes, different time horizons or the reality that most retirees don’t spend their money in a linear fashion. Some people may want to spend more early in retirement and may be willing, even comfortable, making cuts when the market plunges once again. And if retirees want to leave money to their children, they may need to trim their spending further.

Sorting all of this out, particularly without a cushy pension to fall back on, is a complicated task, even for a numbers-savvy retiree. Still, the original 4 percent rule persists as a starting point, and some retirement experts are still comfortable suggesting similar withdrawal rates, with some caveats and new twists of their own.

In a recent analysis, Mr. Pfau compared several withdrawal strategies in an attempt to illustrate how spending patterns might change to guarantee that a portfolio will last for 30 years, even if low rates persist or retires face some other awful combination of events.

He found that people who spend a constant amount adjusted for inflation — similar to the 4 percent rule — would have to reduce that rate to 2.85 to 3 percent if they wanted assurance that their spending would never have to dip below 1.5 percent of their initial portfolio (in inflation-adjusted terms).

So a retiree with $1 million could securely spend nearly $30,000 annually for 30 years, in the best and worst of market conditions. The big drawback, though, is that if economic conditions are generally average, retirees would be left with $794,000 in unspent money. If they were unlucky and experienced terrible market conditions, they would be left with $17,900.

That’s the trouble with this strategy. “Most of the time, you underspend,” said Mr. Pfau, who is also a principal at McLean Asset Management. “Yet you still run the risk of running out.”

Other retirement experts, including Michael Kitces, director of research at the Pinnacle Advisory Group, are still comfortable recommending early withdrawal rates of about 4 percent. He has likened the current environment — low interest rates and high stock market valuations — to walking along a cliff. Today’s retirees are walking along the edge, which, he said in his blog, required more caution and continuous monitoring. But that doesn’t mean they’re going to fall off.

Mr. Pfau isn’t so sure. So his recent study looked at different strategies beyond the 4 percent rule, some of which allow people to spend a bit more early on, but also provided assurances that spending wouldn’t dip below a certain level for 30 years. At least one approach that he analyzed, using a portfolio evenly split between stocks and bonds, was initially created by Jonathan Guyton, a financial planner with Cornerstone Wealth Advisors in Edina, Minn., and allows an initial withdrawal rate that approaches 5 percent.

To start that high, however, you need to follow a complicated set of rules: Normally, annual withdrawal amounts can increase by last year’s rate of inflation. And in good years, retirees can generally increase withdrawals by 10 percent.

But no increase is permitted in years when the portfolio loses money. In fact, a small spending cut might be necessary in that case: When balances drop below certain levels — causing your withdrawal rate to rise more than 20 percent above the initial rate, say to 6.4 percent from 5.3 percent — the next year’s withdrawal must be cut by 10 percent.

Tricky rules of that sort are likely to leave retirees scratching their heads. It’s hard envisioning even the sharpest of aging retirees, much less the most vulnerable, following this sort of discipline on their own.

So perhaps it’s not all that surprising that Mr. Bengen said he had hired not one, but two financial advisers — both good friends — to handle his retirement money. Though his advisers rely on financial software, he said they were proponents of the 4 percent rule.

“And my actual numbers probably come close to that,” said Mr. Bengen, who spends his days honing his creative writing, playing the guitar, setting up bridge and boating clubs and taking time to visit his 20-month-old grandson. “I have followed my own advice.”

But if he had advice to offer others, it is this: “Go to a qualified adviser and sit down and pay for that,” he said. “You are planning for a long period of time. If you make an error early in the process, you may not recover. ”

Source:   nytimes.com

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