Client wants pension planning right before the deadline!

[Davc]

It is even more important at that age to work with a trusted, unscrupulous advisor because this age bracket is the key target for the seminar touting variable annuity crowd who are looking out for their pocket before yours.

Trusted, unscrupulous advisers are the biggest problem!

[Uncle Sam]

Look folks - this is not a debate board and this thread is getting long winded on a tangent for no reason at all.
If you wish to debate an issue between yourselves, please do it by other means - rather than elongate a thread for private conversation.

[sea-tax]

If it is ok with Uncle Sam I have been gone all weekend and just got to reading this thread.


All I can say is WOW guess I should have stayed home for this one!

To Josh don't waste your breath or energy you will not nor should you have to try and convince anybody. Everything you have said is by enlarge right on. Most RIA"S and FA'S understand exactly what you are saying. Multiple studies have shown that over the long haul that equities and bonds will out perform real estate every time.

To the rest if you wish to make your clients Asset rich and cash poor having them pay off the mortgage when the rates are as low as they are going to get, by all means payoff. However start thinking of a way to explain to your client why they must pay 4k to refi to pull cash out at 75 to simply go on a vacation.

What I heard josh say was let your money work for you. Take the money put it into a proper allocated investment that will by enlarge produce enough income to help offset some of the payment. At the end you should still have your home and your 175k. Heck I can think of one fund that would kick of $740 per month tax free and it invests in muni bonds which is about as low a risk as you can get. Munis default at less than 1%.

[Golden Rocket]

Appropriate Topic

Sorry Sam - I believe investments are an entirely appropriate topic. I agree this has become longwinded, especially if turns into a "tastes great" "less filling" donnybrook.

There is scarcely one of us that is not sucked into this with our clients whether we want to or not, and although not a "pure" tax topic, we have to know enough about financial products to intelligently discuss them. You cannot divorce investments and taxes if you wish to get a clear picture of a client's total economic picture.

There was, for example, the "investment counselor" who put a client's IRA into a mutual fund for municipal bonds with a tax-sheltered return of about 2.2%. Talk about turning exempt income into taxable income with no return!! I told him to get rid of this fund and get rid of his counselor. I can cite more examples, but in the interest of sanity, will suffice to say some of these folks are good and some are not.

I'll get really personal and tell one on myself. I had a couple of stocks jump up this year from a total value of $25K to $32K. I still owed $30K on my house and in my later '50s. The decision was simple. Sell the stocks, pay off my house, and send IRS $1000 for estimated taxes on capital gains. The value of these stocks had I not sold them? Last week trading for $26.5K. Whatever happens to the value of my house will not result in putting me out on the street without a place to live.

[Luis Mopeo]

Multiple studies have shown that over the long haul that equities and bonds will out perform real estate every time.

We're talking about a 60-year-old couple who wants to retire in a couple of years. Is that "long haul?"

[sea-tax]

We're talking about a 60-year-old couple who wants to retire in a couple of years. Is that "long haul?"

Actually yes it is. See most people these days retire and then have something close to 15-25 years of retirement and this number is growing as medical advances continue. It is not like it was 65 years ago where by somebody retired spent 5 years enjoying life and then died. If you want the money to grow and be stretched out for the long haul equities must be a component of your portfolio.

A good planner will not go directly to cd's or fixed income the day they retire it is a foolish investment strategy. You make the fixed income portion of your portfolio work way to hard to keep up with inflation, taxes and yes down periods in the economy.

[Bees Knees]

Look folks - this is not a debate board and this thread is getting long winded on a tangent for no reason at all.
If you wish to debate an issue between yourselves, please do it by other means - rather than elongate a thread for private conversation.

Actually, debating tax planning and financial planning is an appropriate use of this forum. These are real issues in which our clients ask for our opinion.

There are pros and cons to both sides of this argument, and I am happy to have Josh and Sea-Tax here to present the other side of the issue.

[Bees Knees]

A good planner will not go directly to cd's or fixed income the day they retire it is a foolish investment strategy. You make the fixed income portion of your portfolio work way to hard to keep up with inflation, taxes and yes down periods in the economy.

I see a crack in the wall...

So you admit that fixed, guaranteed investments, such as bank cds, government bonds, etc. are a portion of a good mix of investments that make up a portfolio.

In other words, a good portfolio will have a mix of mutual funds, bank cds, bonds, etc. You wouldn't, say, put ALL of your eggs in the 9% mutual fund basket.

Am I correct?

Then if that is the case, why not put your fixed, guaranteed investments into paying down debt? What guaranteed investment (cds, government bonds, etc.) will yield at least 6% these days? You could have the best of both worlds, your fixed side of your portfolio going towards being debt free, and the risk side of your portfolio into mutual funds?

[JoshinNC]

A 24 month CD from Countrywide Bank is paying 5.25%

I see a crack in the wall...

So you admit that fixed, guaranteed investments, such as bank cds, government bonds, etc. are a portion of a good mix of investments that make up a portfolio.

In other words, a good portfolio will have a mix of mutual funds, bank cds, bonds, etc. You wouldn't, say, put ALL of your eggs in the 9% mutual fund basket.

Am I correct?

Then if that is the case, why not put your fixed, guaranteed investments into paying down debt? What guaranteed investment (cds, government bonds, etc.) will yield at least 6% these days? You could have the best of both worlds, your fixed side of your portfolio going towards being debt free, and the risk side of your portfolio into mutual funds?

and you still get the tax deduction of the mortgage.

http://www.bankrate.com/brm/rate/high_ratehome.asp?web=brm&prodtype=invest&product=16&sort=2

[sea-tax]

First BK I never had a wall up so no need to crack.

I am not an advocate for one type of investment over another. I think that all investments have a place at varying levels of total portfolio %. I am an advocate of finding the right investment for a specific client and their specific situation. My attitude is ones portfolio is like a pie and that pie should be made of at least a couple of different flavors. The % will vary depending on the risk profile and suitability of the client.

This being said equities outperform all other types of investments and for this reason they should occupy a dominant % of ones portfolio. is that 30% 40% or 90% well it depends on a laundry list of issues you must first consider.

[Bees Knees]

and you still get the tax deduction of the mortgage.

http://www.bankrate.com/brm/rate/hig...duct=16&sort=2

The tax deduction is offset by the tax on dividends from your 9% mutual fund.

True, the mutual fund producing qualified dividends and capital gain distributions may cost less in tax than what you save from your mortgage deduction.

Then again, it may not. If that mortgage was a refinance to pay for the kids college 5 years ago, AMT wants you to add it back, thus wiping out your Schedule A deduction. Plus a reduction in Schedule A deductions due to paying down the mortgage does not cause your Social Security Benefits to be taxable. Your 9% mutual fund will.

Plus, in two years, Congress will have repealed the lower tax on qualified dividends and capital gains.

[Bees Knees]

This being said equities outperform all other types of investments and for this reason they should occupy a dominant % of ones portfolio. is that 30% 40% or 90% well it depends on a laundry list of issues you must first consider.

Can I get you to at least admit paying down a portion of your debt deserves a place in your 30%, 40%, or 90% mix?

[sea-tax]

Can I get you to at least admit paying down a portion of your debt deserves a place in your 30%, 40%, or 90% mix?

I will admit that it does have a place for a specific client who meets the criteria , whether that is your client or not I could not be sure as I know nothing about them.

I will not sit hear and try and argue that a debt free life is not ideal, that would be foolish . the difference in opinion is in how you can achieve the debt free life and what methods are used to get the end result.

[joanmcq]

could you elaborate GR?

It has been inferred in this post that investment consultants do not have the best interests of their customers foremost on their agenda. We have some members who combine this service with their tax practice.

Where I've seen the greed is in house accounts by insurance companies that sell mutual funds. By and large, they have the bulk of the 401k trustee business. They sell the "Magellan" fund to the enrollee, but the money actually goes into a "house" account which invests in Magellan but rakes 4-5% off the top for the insurance company. There is virtually no disclosure of this other than fine print. For that matter, the mutual fund industry has cloak and dagger disclosure practices -- you can read it all in the prospectus, but you'll never get a chart showing your account that tells the full story.

I saw this and immediately thought of my current 401(k). In the past my various 401(k)s have been with a fund company, like T. Rowe Price or Fidelity. But at my current company it is through John Hancock and all of the funds if from a fund company like T. Rowe are prefaced by 'John Hancock'. My supervisor has been complaining about the fees appearing to eat her income. I've only recently opened mine since I had to start taking RMDs from my inherited IRA and need to 'replace' my retirement assets by more than the $4000 I could put in my IRA (and I can still put the $4000 in my Roth) and my biz doesn't generate enough income to make a SEP a viable option. I'm wondering if we should really start making a ruckus and try to get them to change plan managers.

[Black Bart]

Sea-tax

About my $2,000 IRA sheetrock hanger:

(1) His bank CD interest isn't doing him any good.
(2) He doesn't have the time or skill to buy/sell individual stocks.
(3) The "blue chip" stocks cost too much for him to get a base in those.

Soooo...do you know of any good mutual funds that invest in small-cap (is that the right term?) stocks that cost around, say $20 per share, which his $2,000 would buy him a hundred shares of?

If you can't say (rules and all), then never mind and thanks anyway. Sorry for getting you mixed up a while ago -- I was thinking about that quote (but, you could do worse than get mistaken for him -- he's a pretty good ole boy, as are you).