The Educator's Retirement

The Issues Facing Us - National Level

2010-03-12T10:53:00.000-05:00

Being a student of history, this past year has been one fraught with huge national issues for President Obama and 111th Congress. From tackling a financial crisis (that President Bush and the 110th Congress started battling) to healthcare and global warming to unemployment, it has not been an easy term.

The "mood" of the nation has changed somewhat over the past year as well. The promise of change and excitement of the first minority President has given way to more partisan politics from both sides. The Republicans stand to gain numerous seats in the House and Senate based on the current polls, so there is a "push" to get various bills through Congress and on the President's desk. No matter which party you are for, the stalemate in Congress has both good and bad consequences.

Honestly, there does need to be a reform of the healthcare and financial systems. On healthcare, costs are spiraling out of control for numerous reasons, and the drug companies, insurance companies, legal system, and uninsured are all to blame in some part. Does a fix exist? I personally fail to see how a government run healthcare system can be any more efficient due to the layers of bureaucracy that are sure to follow, but I also understand the notion that insurance companies are out to make a profit. As with various industries though, who is to say what margin is out of line?

On the financial front, there is much needed reform. Previous administrations and Congresses urged home ownership for all, and with that, safeguards were lowered to allow those with riskier credit to own homes. Home ownership boomed and was lauded by politicians, but it was eating away at the credit worthiness of consumers and banks. When it crashed, it took numerous industries and jobs along with it. Over regulation will stifle growth, but deregulation will sometimes exaggerate it. There needs to be a good mix to allow risks to be taken, but risks that are minimal and do not threaten the system as a whole.

Unemployment stands at 9.7%, but there is no "quick fix." What most Americans do not realize is that it is the economic cycle that will drive unemployment. As the economy starts to grow, employers continue to be slow to hire new staff, but as the current staff gets overworked and starts to fall behind on productivity, employers will start hiring again. The same is true in downturns. Employers hold on to employees longer than they should thinking things will change until they finally have to lay people off. We are currently in the beginning of the growing economic cycle, but it could still be another six months before employers really start to rehire employees. Not great news, but it is better than still being in the downturn.

On the Social Security front, I continue to receive emails regarding WEP/GPO reform. Unfortunately, I can almost 100% guarantee that Congress will NOT tackle this issue prior to the elections in November which means it will be pushed on to the 112th Congress (starting next January). We all know that Social Security needs to be reformed, but with other pressing issues on President Obama's plate, I do not see a way that this issue moves to the forefront. Healthcare, financial reform, and the economy are too large to bring up another large issue - Social Security.

Finally, I had a good discussion with an old college professor a few weeks back. While I was in college and grad school, we would frequently discussed politics, so this was a trip down memory lane for me.

Anyway, one of the points that both of us came to was that when you have one party controlling both the Executive and Legislative branches, it is not always a good thing.

Numerous commentators have pointed to Obama as being very liberal, but if you will look at some of the things that he has said recently, you will notice he has started to try to move a bit more towards the middle. The current problem though is a super majority in the House headed by Speaker Nancy Pelosi, and a majority in Senate headed by Majority Leader Harry Reid. The House generally puts forward much more liberal bills that cannot pass through the Senate, so you run into a wall.

Our discussion focused more on former President Clinton and Newt Gingrich though. They were "adversaries," but they needed to come together to get items through Congress and to be signed by the President Clinton. Clinton and Gingrich could both stand their ground, but when push came to shove (like the budget) the two had to come together to make things work. I know it is a strange concept nowadays.

As we look at a potential change in the structure of Congress next term, will it actually be a positive? Would the need to make things more bipartisan help Obama and Congress? Time will tell, but history tells us it may be so.

Next up... State level issues...

2010 Investment Options for Your 403(b)

2010-01-25T09:15:00.001-05:00

In early January 2009, I wrote:

"In 2002, the the S&P 500 lost 23.37%. At the beginning of 2003, the market continued to trend lower, and a funny thing happened, it turned around. By the end of the year, the S&P 500 had gained 26.39%.

I am not saying that 2009 will be a spectacular year and everything will be rosy, but if do your research and diversify your investments, you will at least be giving yourself a chance to participate."

If only I could predict the lottery numbers every week that well!

In the end, the S&P 500 gained 26.5% in 2009 which is almost exactly what it did in 2003. There are few similarities as to why the market turned around in 2003 and 2009, but it did.

Early in 2009, the market was just completely oversold. Everyone was so worried that every single company was going to go out of business that they quite literally sold everything (including bonds and preferred stocks). When the turnround came, it was strong.

Moving forward into 2010, it is definitely hard to see what areas of the market will stage the best performance, so since almost all of you seldom make changes to your portfolios, you must continue to diversify your portfolio - if nothing else, rebalance from last year!

Do not load up on international funds just because they had the best performance in 2009. International funds are somewhat more volatile because the international markets are more volatile, but there is also the currency trade which can help or hurt the fund's performance. If you wish to be more aggressive, adding a bit to your international holdings is a great way to accomplish this goal, but do not over do it!

On the bond side, just like in 2009, investment grade and inflation protected bonds (TIPS) look to be some of the best options. Government bonds should do poorly again in 2010 just like they did in 2009, and there is just about zero reason to be in them right now.

As I said last year, "As for the rest of the account, you really need to continue to research the funds that you have available. A good diversification model that would now include the investment grade and inflation protected bond funds would be excellent. Remember that if you only look at last year, you will be missing the point. Look at good and bad years, look at changes in the managers, etc."

If you look back through history, the second year of a recovery is generally not as spectacular as the first year, but it is usually still a good year. The goal here is to reap returns when we can and mitigate the losses in a bad year. Keep that in mind, and you will almost assuredly do better than those that try to time the market.

I wish everyone only the best in 2010, and I hope it is a very prosperous year for all of us!

Welcome to 2010!

2010-01-17T12:53:00.000-05:00

Welcome to 2010! The new year has started much like the old year finished with a market steadily moving forward. Whether you believe the market is headed higher (a bull) or the market will go lower (a bear), how should you be playing the market and economy?

I have spent the last month or so researching the trends and patterns of 2009, and in some cases, I have gone back to previous economic downturns to try and find similarities to see how things moved forward. Yes, it is that history buff in me that leads me to research the past, but it is sometimes weird how the present really will look like the past.

Over the next few weeks, I'll be writing about investing options for 2010 (I had a similar post in 2009 that worked out very well - 2009 Investment Options for your 403(b)), the various issues facing President Obama and Congress, and then a post on planning for retirement for those retiring this year.

All in all, I hope that everyone had a great holidays and first two weeks of 2010. I look forward to a great 2010, and as always, if you have questions or comments, please by all means email me. It really is some of your own questions that give me ideas to discuss in future posts.

Happy New Year!

2010-01-01T00:01:00.001-05:00

As we ring in the New Year, let's say goodbye to a 2009 that saw an economy out on a ledge at one point only to rebound and become a great investing year.

While there will always be ups and downs in the market and economy, may your health, happiness, and fortune always prosper. I hope 2010 is a great year for all of you.

All the best,
Robby

Happy Holidays!

2009-12-24T11:56:00.000-05:00

Hoping your holidays are filled with laughter, excitement, friends, family, and memories for all.

All the best,
Robby

Georgia TRS Cost of Living Adjustment for January 2010

2009-12-13T09:00:00.003-05:00

This past week the Teachers Retirement System of Georgia (TRS) announced the cost of living adjustment (COLA) for retirees starting in January 2010.

The basics of the announcement was that if you retired between July 1, 2008 - December 1, 2008, you are not eligible for the 1.5% COLA since the Consumer Price Index (CPI) is still not above average from when you retired. Retirees from this period will continue to have the same gross benefit payments with the next review of the average CPI being in May 2010 (for the period starting July 2010).

ALL other retirees are eligible to receive the 1.5% COLA increase, and this change will be effective January 1, 2010.

To read the official letter from Jeffrey Ezell, TRS Executive Director, please click here.

A "Diet" for Your Budget?

2009-12-06T10:30:00.000-05:00

I had an interesting dialog via email this week with one reader that questioned why she should and how she could afford to save for retirement beyond her TRS pension.

It all started with a simple question - "Why should I save more than my TRS pension will give me?" A good, thoughtful question, and one that I thought I had covered rather well.

In my response, I noted that the educator was not paying into Social Security (SSA), did not have 10+ years of SSA earnings anyway (she is young), and the county she worked for did have a small supplemental pension - but it would not kick in before age 65. I also noted that in her gross pay, 5.2% was passed on to her net pay that would have been contributed to SSA (SSA is actually 6.2% but the county supplemental pension contribution was 1%).

I further tried to explain that between full retirement (30 years) and age 65 (supplemental pension) that the only income that was guaranteed to be distributed was her TRS pension. As educators, one of your most valuable benefits is your pension, but this does not mean that it is everything you will ever need. Granted, it is a good pension and about 60% of your highest salary, but from 100% to 60% is a big jump with no other income stream.

My new friend conceded that this was a big gap to fill, but she wanted to know why she was not really educated on this fact and why she was responsible for it. I was shocked at the second part of the question.

Looking at just the second part of the question - why she is responsible for her retirement income - can be a very touchy subject. My argument though is pretty simple - at some point, you are responsible for yourself.

In the business world, most employees have a 401(k) which along with SSA is their retirement (there are few pensions remaining anywhere outside government). The onerous is on the employee to contribute to the 401(k) and with matching and/or discretionary contributions from the employer, the employee will hopefully build a retirement account that can be drawn upon through the rest of their life. If the employee does not contribute enough, takes too much, makes bad investment decisions, etc., when then account is gone, the income stops. No more income (outside of SSA) from all of the years they worked. I think this opened her eyes.

As for the financial education of our educators, I really have no response. I believe that the counties are doing what they feel is an adequate job talking to their employees, but are they really getting the message across? I have never attended or spoken at a "teacher orientation" or a "back to school" meeting, but I believe that these subjects are covered. Maybe some "shock and awe" would be better served to explain what will happen at retirement...

Getting back to my young friend, she started to understand that contributing just half (2.6%) of the 5.2% of what would have been her SSA contribution would become a large benefit for her at retirement - and she wants to grow the contribution from there every year. She also figured out that since it was pre-tax, her net check would not be nearly impacted like she first thought.

The most interesting thing she said though was that her new contributions to her retirement plan were going to be her "diet for her budget." It was not something she wanted to do, but in the end, she knew it would help her financial health.

Granted, I am not an educator, but I think I just saw that little light bulb flash on.

Happy Thanksgiving!

2009-11-25T09:45:00.002-05:00

I would like to wish all of my readers and their families a very happy and healthy Thanksgiving.

Georgia Educator Recovery Adjustment - More Information

2009-11-24T08:30:00.003-05:00

In May, I wrote a post called "Did You Contribute to TRS Between 1987 and 1990?" In that post, I discussed that a client of mine had passed on some information that she had received from TRS regarding a recovery adjustment for contributions to TRS during July 1, 1987 through January 1, 1990.

Since that time, there has been no real news, but recently, TRS added some information to their website regarding the subject.

Essentially, several people believed that the amount for the recovery adjustment was in fact a recovery credit (meaning that they were owed the entire figure). Unfortunately, this is not the case as I stated in my previous post, but I can definitely understand where someone would believe this to be true.

Georgia's income tax rate is 6%, so the largest benefit you could possibly receive would be about 6% of the amount on the letter (i.e. $2,000 in contributions in the letter would net about $120 in recovery). There are several factors of course, so your accountant and/or tax preparer is the best person to help you find out how much (if any) benefit you may receive.

The information below is directly from the TRS website - click here to see the entire article:

"To be clear, the amount shown in the letter you received is not the amount you are owed by the Georgia Department of Revenue, but is the amount of money from which you can recover the taxes you paid on it. This money has nothing to do with incorrect contribution amounts. The contributions you made to TRS during this time were and are correct."

"If you fall into this adjustment period and are unsure as to whether or not you filed for this adjustment, we recommend that you go back and check your tax returns for the applicable year to avoid claiming the recovery more than once. If you already received your adjustment, then you are all set. If you did not claim the adjustment, please contact the Georgia Department of Revenue directly at https://etax.dor.ga.gov/ or 877-602-8477 to find out if you are still eligible."

The "Secret Sauce" of Investing

2009-11-23T08:30:00.001-05:00

A well known fund company likes to say that they have a "secret sauce" when it comes to investing in various companies. The ingredients of the "sauce" are not really secret, but in what amounts and how they use them is. The ingredients I am talking about are research and experience.

As an educator, your first year in the class room you made "rookie" mistakes, and you learned from them. Every single industry is just about the same, but with investing, you must also have thorough research to dig into to understand a company.

The "secret sauce" is that balancing act of combining the right amount of research with the right amount of experience to know if you are choosing a great company that has a great future or a company that looks "cheap" and it should be.

I have tried to preach research and education over the past year and a half, and hopefully, all of you have heeded my advice. There is no one that can say that they make every single decision perfectly, but when you have all of the information in front of you, what is it telling you? At this point, in steps your experience.

In your profession, most new educators have mentors that help guide them along through the various potholes of the first year or two. Financial professionals sometimes have the same, but whether they do or do not, most fall back on their own thoughts and values.

Research

When you look at the various funds that you have to choose from in your accounts, are you looking at just last year's performance? The last 3 years? The last 5 years? Are you taking into account the various categories of investing to make sure you are diversified? Do you know what you are buying?

I have my own thoughts on different funds for different situations, but one of the best tools to use to analyze any mutual fund starts with Morningstar (www.morningstar.com). They have free tools and a system of categorizing each fund along with a rating system (1 to 5 stars) for most funds (I am not advocating to purchase a subscription - use the free info). You can also use Yahoo! finance to see if there were any recent "news" articles on the fund you are researching. These are definitely not the only resources available, but they can be a good place to start.

Once you have acquired this information, this is where that experience and learned knowledge come into play.

Experience

In October 2008 (six months before the bottom of the stock market), Warren Buffett wrote an Op-Ed piece in The New York Times called, "Buy American. I am." In the piece he gave two pieces of information that every investor should always understand:

"A simple rule... : Be fearful when others are greedy, and be greedy when others are fearful."

"Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over."

So one of the most seasoned and successful investors of all time gave you a few bits of information: 1) When everyone wants in... be cautious. When everyone wants out... start buying. 2)The direction of the market changes well before the sentiment and the economy, so if you are waiting for the good news to invest, it will be too late.

Looking Forward

The fund company that I visited believed that their funds were positioned for a 2010 economic and job recovery. They gave great ideas, analysis, and predictions for the future of the market and the domestic and global economy. The question has thus become not if the US is going to continue to grow, but at what pace and what areas?

What Does This Mean to You?

Today's post is not about investing all of your money today, but instead more about trying to make the right decisions based on research and experience. Reevaluate your allocations, see if they are still in-line with where they should be. Should you be more aggressive or more conservative? Should you contribute more to your retirement now? Do you have your debt and savings where they should be?

Just a little reminder that while the market and economic recovery bodes well for the future, it does not mean that there are not lessons to be learned.

Eligible Georgia Retirees Switching to Medicare Advantage Plans

2009-10-26T09:00:00.001-04:00

Effective January 1, 2010, ALL eligible current and future retirees (and their dependents) that qualify for Medicare will be transferred over to a Medicare Advantage (MA) plan. They will have some choices, but the plans that they will need to enroll in are considered Medicare Advantage with prescription drugs (MAPD) private fee for service (PFFS). This policy change was approved by the Board of Community Health on October 30, 2008.

The changes were announced in a letter from the Georgia Department of Community Health to Medicare eligible retirees in mid-July, but they should also have received an additional letter around the first of October.

The important issue here is that we are currently in the open enrollment period for the plans. Open enrollment started on October 9, and it will end on November 10 - this is also called the Retiree Option Change Period (ROCP).

Drug Benefit - Do Not Forget About It

I am mentioning this first because you are already paying for a prescription drug benefit in this new plan. DO NOT SIGN UP FOR MEDICARE PART D. If you enroll in a separate Medicare Part D plan after you are in the MAPD plan, the Centers for Medicare & Medicaid Services will notify your insurance vendor that you are not eligible for this coverage, and you will lose your SHBP coverage.

What Are My Choices?

There are two companies and two plans for you to choose from -

CIGNA Standard Medicare Access Plus Rx

CIGNA Premium Medicare Access Plus Rx

UnitedHealthcare MedicareDirect Standard Plan

UnitedHealthcare MedicareDirect Premium Plan

What Does the Change Really Mean for My Doctors?

It was detailed in July 15th letter that your doctor (provider) would need to accept the changes in the plan to accept the MA terms. From all the research and discussions that I have had with both doctors and insurance vendors, it does not seem like there will be many changes they believe (view the letter with all enclosures by clicking here).

There are no networks. You may see any provider that accepts Medicare and is willing to accept CIGNA/UHC's terms and conditions.

The really important point to make is to have your provider agree to accept the new plan changes (information on the plan was given in the July 15 letter). Along those lines, I have received a few emails talking about the problems with finding Medicare Advantage doctors. Numerous articles have said that the vast majority of doctors will not refuse Medicare or Medicare Advantage from current patients - they wish to continue the relationship. Some doctors may or may not accept new patients, but a study by the Center for Studying Health System Change found that nearly 75% of doctors accepted all or most new Medicare patients in 2008 (Study: Most Physicians Still Accepting Medicare Patients, Fierce Health Finance).

How Much Will This Cost Me?

First, remember that the State of Georgia is subsidizing your coverage by nearly 75% of the total costs. This is one of the benefits that was "given" to you, so if you were to opt out of the MA plan, it will cost you hundreds of dollars per month for the same coverage. In other words, unless you feel like you have no other option and money to burn, opting out is not an option... (who has money to burn??)

The good news about the changes is that it will actually save you money every single month for your coverage. Currently, a PPO covered participant pays $32.90 for single coverage ($142.40 for family). The standard option MAPD PFFS plan will cost $19.30 for single coverage and $38.60 for family coverage (all dependents eligible for MA plan). A mix of eligible and non-eligible Medicare participants in family coverage will have higher costs, but that is to be expected.

The premium coverage option for the MAPD PFFS plan will cost $59.30 for a single and $118.60 for a family (all dependents eligible for MA plan). The benefits here are a lower out-of-pocket maximum, lower hospital costs, reduced co-pays, and a better prescription drug benefit. The choice is yours, but weigh the costs by looking at your 2008 and 2009 medical expenditures. The standard plan could cost you more based on your needs... (Check the July 15 letter above to compare the coverages on the Plan Summary enclosure)

If you want to check out the retiree rates as set by the SHBP, please click this link to open the PDF.

What If I Don't Choose?

According to the information sent with the July 15 letter, "If you are not enrolled in a MAPD PFFS option and do not make an election during the ROCP, your coverage will roll to the MAPD PFFS option of the healthcare vendor you are currently covered. Kaiser members who do not make an election will default to the CIGNA Medicare Access Plus Rx (PFFS) - Standard Plan."

Conclusion

Any change is tough to accept in anything... especially medical coverage. The unknown is more of a worry than the known even when it may be better. In five years, few people may even remember this change unless there are real problems. If that starts to happen though, you can almost be assured that the SHBP and its vendors will try to make things right. The State Health Benefit Plan covered 693,716 people as of September 1, 2009, and that is far too big a number to think that they will just accept mediocre results.

Try to work with your doctors and try to work with the insurance vendors. The vendors are there to help, so let them help. Both CIGNA and UHC told me that if a doctor is not accepting the plan after you discuss it with them, get the vendor involved. They may be able to help explain it from an ease of use and payment perspective. Just a hint the vendors gave me.

Taking a Break

2009-10-12T08:00:00.001-04:00

Hello all. I have been taking a break the last few weeks, but I have not forgotten about all of you. After more than a year of writing at least one blog a week, I just needed a breather.

On a completely separate topic, one of my partners at my firm and I were both named 2009 FIVE STAR Wealth Managers by Atlanta Magazine (October 2009 issue). It is indeed an honor to be included in the top 4% of financial advisors in Atlanta, and it something that was completely unexpected. (If you wish to read my firm's press release regarding the award, please click here.)

That is just about it. I hope your school year is going well, I hope you are well diversified in your retirement accounts, and I look forward to writing some more posts in the coming weeks.

Where Are You Getting Advice? Timing the Market?

2009-09-20T12:00:00.001-04:00

I spent last weekend and the first part of this past week in San Diego with 1,200 other investment advisors at the annual Schwab Impact conference. It is always good to getaway to hear from various corporate and political leaders, economists and analysts, and other advisors. I usually come away a bit sleepy but full of energy, and this year was no different.

The past year has been one for the history books, and most of my colleagues and me have learned quite a bit I believe. I was preaching diversification before, and I continue to preach it. I was saying to continue to contribute to your 403b (or 401k) which allows you to dollar cost average, and that is still the way to go. These are not new interesting ideas, but they make up some of the foundation of investing.

In my discussions this past week, I heard that some advisors are seeing an "uptick" in the number of "financial advisors" trying to say how they can "time the market" and get in and out at the top and bottom. When you hear this... be very, very cautious. It is always easy to say whatever, but the reality may be somewhat different.

Timing the Market

Yesterday I mentioned that sometimes I am told that a friend/relative/neighbor sold out at the top and bought in at the bottom (in the past it has always been the "hot" stock). This is almost impossible to do. In fact, I have had numerous people ask when is the market going to go back down so they can get in again. After talking to most of these people, they generally have sold out at the very bottom of the market.

In a post this summer, I discussed "capitulation" as when investors have had enough, throw in the towel, and flee the market. Unfortunately, this is usually what most of the people waiting to get back in did. Not all of them but a majority of them did this very thing. I definitely understand it.

If you are still sitting on the "sidelines" waiting for the market, you are taking a big risk there too. Wherever your money is just sitting waiting, there are risks there too.

Inflation Risk - The possibility that inflation will rise thus decreasing the buying power of a dollar.

Interest Rate Risk - The possibility of a reduction in the value of a security, especially a bond or CD, resulting from a rise in interest rates.

Principal Risk - The risk of losing the amount invested due to bankruptcy or default. There is always the possibility that through some set of circumstances, invested money will decrease or completely disappear. In this case, principal is lost, not just profits. Even with CDs, this is a risk if you go over the FDIC limit.

Opportunity Risk - The risk that a better opportunity may present itself after an irreversible decision has been made. Example - Buying a 5 year CD at a nice rate now, but if rates rise substantially after even 1 year, you will get hit with a penalty to break the CD and start over.

All of the above are not meant to scare anyone to move, but to point out that every decision has a bit of risk involved. If you jump from one thing to another, you are creating even more risks for yourself.

My wife has a saying, "Plan your work. Work your plan." Simple I know, but it lends itself here too. Where do you want to be? How are you going to get there? What are the risks involved? These are just part of what advisors try to think about every day for our clients. Are you thinking about this? Is your advisor?

How Are Your Investments Performing?

2009-09-19T09:30:00.003-04:00

If you have been asleep for all of 2009, you have missed quite a ride in the stock market. Through Thursday, the S&P 500 is up over 20% for the year, and that is quite an accomplishment any year.

I don't believe that anyone saw a year like this coming, but hindsight is always 20/20. I am sure you will hear about people that bought in exactly at the bottom and have made untold amounts of wealth. Every time I hear someone tell me that their friend/relative/neighbor did, I just ask to see the statements. No one has produced one yet.

What I do believe is that the most prudent people watched their diversification, scaled back a little if they were nervous, but they tried to look long term. I wrote several pieces about trying to think beyond today and be logical. Emotions play a big part in our lives, but they can also lead to hasty decisions. I am sure that we have all experienced those moments, and I will be the first to admit that I have many times in my life. When it comes to financial matters though, it is usually the well thought out, informed decision that gives us our best chance for the future.

When I hear different people say that "now" they want to start investing, I think about the past six months. It is hard to imagine that we have come from the "brink" of the depression to a market and economy that seem to be pointed higher. The big moves in the market though are mostly behind us, but the future still looks good. I did want to point out some things I said in the past...

"In 2002, the the S&P 500 lost 23.37%. At the beginning of 2003, the market continued to trend lower, and a funny thing happened, it turned around. By the end of the year, the S&P 500 had gained 26.39%.

I am not saying that 2009 will be a spectacular year and everything will be rosy, but if do your research and diversify your investments, you will at least be giving yourself a chance to participate."

- January 14, 2009 - 2009 Investment Options for Your 403(b)

"This is not the end of the world. I know it is hard to believe, but America will survive. As Warren Buffett's letter to Berkshire Hathaway shareholders said over the weekend, 'Our country has faced far worse travails in the past,' he said. 'Without fail, however, we've overcome them.'"

- March 3, 2009 (one week before the bottom) - Current Investment Options

"If you were to go back and look at the history of the economy and stock market, it would show you several things. First, when the Fed and US government start turning on the money, things happen. It might be like turning a cruise ship, but they happen. Second, the market points to a recovery well before the recovery is felt elsewhere.

The stock market is essentially a predictor of the future. It is generally 6-9 months ahead of the economy all the time. The market started to drop in the fall/winter of 2007... the economy started to show some cracks in the summer/fall 2008."

"No one can say that we are there yet until we see it in the rear view mirror, but the positives are starting to show. The market has turned up, the banks have said they will be profitable in the first quarter, and some good economic numbers have started to move positive from the negative slide.

The market is never a smooth ride, but the signs are moving to a direction that makes the future much more acceptable. There will be bumps and drops (there always are), but the long term investor looks to have a brightening future. Just remember the lessons you have learned over the past six months..."

- April 3, 2009 - Is History Repeating Itself? Looking Forward on the Market

Was I crazy, smart, or just trying to learn from the past?

My approach to investing is not radical or new, but sometimes it does test a bit of even my faith. I try to take the current outlook and look at it from a historical perspective. I cannot "see" the bottom or the top, but I can see what has worked, what has not, what has changed, and then decide what I think is the best approach. As a friend told me... "Boring!"

I hope all of you have done well thus far this year, and I hope I have helped a little along the way. As always, if there is is anything I can do to help, please let me know - rschultz@rollinsfinancial.com.

New Website Design

2009-09-08T11:42:00.000-04:00

Over the past 15 months, I have now written 100 posts for The Educator's Retirement blog, and the site has never been changed. Well, over the long weekend, I had some time (and energy), so I decided to make some changes.

I hope you will go to the site (www.theeducatorsretirement.com), look around, and let me know what you think.

It is still a work in progress, but since I am trying to find the best way to get information across to educators, your input is appreciated. Should something else be added or taken away? The fonts, colors, and spacing acceptable?

Usually, we are just told this is the website and go to it, but if there is something I have overlooked or not thought of, I will definitely look to make some changes. You are the focus group, test subjects, and end users. Let me know what you think - rschultz@rollinsfinancial.com.

Thanks for helping.

Thank You

2009-09-07T12:31:00.000-04:00

I just wanted to thank everyone for the kind thoughts and words regarding Stormy. It means more than you know that people I have never met and reside around the country took the time to read and send an email about our pet. My wife and I really appreciate it.

I wish you all only the best.

What Should We Look For in Health Care Reform?

2009-09-07T12:30:00.066-04:00

Health care reform. It has become a firestorm topic, but most people agree that we do need some type of reform.

I have heard the rumors, researched some of the current House bill (H.R.3200 - America's Affordable Health Choices Act of 2009), listened to debates, read editorials, and finally, just tried to put most of it all together in one item. Hopefully, this post addresses most of the issues that everyone wants to know about and some that people are leaving out.

Looking at the Problem

The problem is we currently have about 46 million people in the US that are not covered by insurance. The Census Bureau provided the following statistics regarding the uninsured:

Total uninsured people in the United States	46.0 million
Less non-U.S. citizens (many here illegally)	(9.7 million)
Less household annual incomes greater than $50,000	(10.0 million)
Less household annual incomes greater than $75,000	(7.0 million)
ADJUSTED TOTAL UNINSURED U.S. LEGAL RESIDENTS	13.0 million

From what I have read, most of the people in the under $50,000 in annual income qualify for programs or medical insurance from their employers but they either do not accept coverage or do not know about the coverage. Those with income over $75,000 can afford the coverage but they either do not want it or are self-insured.

Everyone should be signed up, but if you don't want it should you be forced to have it? In Massachusetts (state mandated plan), they said yes. If you do not have insurance, you are "taxed" on your state tax return. The end result is if you don't want it, you are pretty much going to pay for it anyway. Besides if something happens, the system will need to take care of you, and you should be able to receive care.

The interesting thing is the "healthy" people would spread the cost and make insurance actually cheaper for all. Think about your car insurance policy. You MUST have at least liability, but most also have collision, comprehensive, and uninsured motorist coverage. You have the additional coverage because you do not know what will happen, but you must have the basic liability coverage to drive the car. If everyone had insurance, we could pay less because there would not be a need for uninsured motorist coverage.

"Of the total uninsured, roughly 40% are age 18 to 34, and they are in basic good health. They have, apparently, elected to put their dollars elsewhere in the economy rather than in buying medical coverage. It is presumed that those with annual incomes greater than $50,000 do not buy medical insurance because they do not feel they need it or they are self-insured. They clearly could afford coverage, but elect not to purchase it." - Healthcare Relief Without Universal Health

What We Should Do

First, Congress wants to argue everything all at once, and some of the controversial issues are holding up the whole plan. It would be a good idea to divide the bill into three bills - one that has all of the things people agree on, one that has things that most agree on, and the ones that are causes the biggest problems. This lets the President and Congress say they have done something, and then the can go to work on the nitty-gritty stuff.

Be responsible! We all need to be responsible for ourselves. We all hear about the role that our doctors, insurance, and government should play, but what about pointing the finger a little more at ourselves. Eat right, exercise, sleep, watch your body fat, etc. If we all did these things, our population would be healthier with fewer ailments, and just that would start to lower costs. We can all go to doctors, clinics, etc., but we all must start to focus some of the issue on us as well. If we were overall healthier, we could focus even more on cancer, blood disorders, mental disorders, Alzheimer's, etc. that have nothing to do with how healthy we live.

Control costs!!! How? In Vermont they have 39 Federally Qualified Health Centers that are essentially a "doc in a box" that takes everyone (Hard to Believe! By Bob Herbert - The New York Times). They have a sliding scale for those without insurance, and it has relieved a strain on the system because these people are not going to the ER.

People without health insurance traditionally go to the ER for free medical coverage because they cannot be turned away. If you do go to the ER for say a sore throat. You will wait hours, probably see a PA (physician's assistant), and most likely get billed more than a $500. If you go to a local clinic instead, you will wait less time, get at least the same care (possibly by a doctor), and get billed about $150 or so.

Remove the crush on the ER, and suddenly health care costs will be cut. Save the ER for real emergencies. The ER wait times will improve and the cost will come down... a win-win.

Illegal aliens? None of the current plans even address it. A plan without addressing one of the largest issues is like buying a house without a roof. As long as it doesn't rain... no problem, but when it rains, you are in huge trouble.

If we had the clinics, you could make them not rely on resident status. Also, we must come to grips with the cost they provide on the system with little or no contribution. I am not trying to say to go after them for money, but if they are working in the US and being paid, FICA should be levied and the employers are also to blame.

The government option... get rid of it. Every program the government runs turns into an issue. Medicare, Medicaid, Social Security, Cash for Clunkers, Congress, etc. If you make it a government bureaucracy, you have done nothing but raise the price and lower the benefit.

Private Insurance... should be regulated on the national level and not by all of the various states. We should at least have a national regulatory agency that sets the standards, and if the states wish to go above it, then we cannot stop them, but the basic coverage should be the same from Maine to Nevada.

As with natural gas in Georgia, there should be a "last resort" insurer. This means that if all of the private insurers have higher rates, there should be a government subsidized plan that kicks in for those based on their income. Think Kaiser, Blue Cross/Blue Shield, etc.

Living wills? Yes! Everyone should have them, but the issue is do not allow a stage 4 cancer patient to not receive treatment. Terminal cases where the patient is non-responsive is one thing, but to deny a cancer patient treatment is something else.

Insurance Portability? YES!!! This is one of the biggest problems from a society that continues to change jobs and careers. Make the insurance portable with guaranteed coverage for pre-existing conditions and if you get sick. That is why you need the insurance in the first place.

Preventative Care is a must. It has shown time and time again to reduce overall costs even though the short term may seem more expensive. We have a long term problem, and the short term is of little consequence.

What We Cannot Do

Tax the rich... The "rich" cannot continue to foot the bill for the entire country and the fix for all too. They cannot fix social security, health care, etc. by raising taxes a few points. It will not work. Congress is already probably going to let many of the Bush tax cuts expire, so revenue "should" increase. Are we to also add a "surtax" on their income too?

Not Compromise! This is a plan that is supposed to benefit everyone, and neither party has exactly been the picture of thinking of the greater good. Both republicans and democrats MUST come together for a plan that the country will get behind, or we will continue to have a fractured nation where the people do not trust the government.

Where to Look for Answers

There are a million different good ideas, facts, figures, and articles written about health care. I am going to mention a few below:

Healthcare Reform from the Trenches - By Doug Kelsey - a post from a blog I follow which discusses the issues from a physical trainer point of view

Healthcare Relief Without Universal Health - a post from my firm's blog

Americans for Stable Quality Care - Another good site that tries to handle some of the rumors swirling around the various proposals.

I have probably read more on this one topic in the past month than for any other topic I have written about. We are in the midst of having full coverage, but it must be done responsibly.

I worry that the cost of the plans the democrats have will be so great that in 5 years we will be trying to fix or undo what has been done when the program is in shambles. I also worry that the republicans are missing the boat to actually come together on a huge social issue and make it the best possible plan for the good of the nation.

We need reform, and we do have the possibility of having it, but let's make sure we get it right the first time.

Farewell to Stormy

2009-09-06T11:42:00.001-04:00

I have been writing a post over the past week on health care that I cannot seem to finish at the moment. My little world that deals with all things financial cannot compete with my little friend Stormy, so if I can, today I want to discuss him.

On Saturday my wife and I found out that one of our cats, Stormy, had unfortunately been killed by a coyote. There are millions of things to say, feelings to express, and memories to share, but the end result is that when you don't have kids, your pets become your kids.

Stormy was found in Conyers, Georgia just over nine years ago by a neighbor in a storm drain (thus you get Stormy now). He was a little runt of an orange tabby kitten that had a bloated stomach from being malnourished and was covered in fleas. Needless to say, my wife and I immediately had a soft spot for the little guy. Three weeks later, he had gained 2 pounds, did not have a single flea on him, and was enjoying the life of a spoiled kitten.

Stormy grew into a big cat that even at 14 pounds was not overweight for him. He had a birthmark black spot on one of his front paws that we mistook for an oil stain at first. He was the "king of neighborhood" as one of my neighbor's liked to say. He would lay with front paws stretched out and crossed in front of him as if everyone else was his servant. He was obviously the top of the pyramid when it came to our cats and those in the neighborhood, yet he rarely showed the fierceness within him.

To my wife and me he was the big lovable orange tabby that would get in your lap or face if you weren't paying him enough attention. He was there watching me work in the yard, talk to neighbors, or waiting for me to get home to play. He was almost always the first to come when I whistled to call the cats home at night. His ears would perk up, and I would see him trotting home.

We know pets are sadly not with us along as we want, but we are grateful to them for the times we do get to share. Stormy was a sweet boy that came into our lives completely unexpected nine years ago and sadly left just as quick yesterday. We will miss him, but we know he is always in our hearts and minds.

Points of View

2009-09-05T12:00:00.001-04:00

A Teachable Moment - The Wall Street Journal - "President Obama's plan to speak to America's schoolchildren next Tuesday has some Republicans in an uproar. 'As the father of four children, I am absolutely appalled that taxpayer dollars are being used to spread President Obama's socialist ideology,' thunders Jim Greer, chairman of Florida's Republican Party, in a press release. 'President Obama has turned to American's children to spread his liberal lies, indoctrinating American's [sic] youngest children before they have a chance to decide for themselves.' Columnists who spy a conspiracy behind every Democrat are also spreading alarm."

Accountability in Public Schools - The New York Times - "The Obama administration laid down an appropriately tough line in late July when it released preliminary rules for the $4.3 billion pot of money known as the Race to the Top Fund. The administration rightly sees it as a way to spur reform by rewarding states that embrace high standards and bypassing those that do not."

Indianapolis Tests Out Education Reform - By Matthew Tully - The Wall Street Journal - "The classrooms were full and bustling with activity at Valley Mills Elementary School on the city's southwest side one recent rain-soaked morning. Children smiled and raised their hands, eager to answer questions, and to tell me how happy they were to be in school on a summer day. This was not your father's summer school—punitive and mandatory—but a fresh approach to bridging the achievement gap."

Being Reflective

2009-08-31T09:00:00.000-04:00

Being reflective. It is a trait that we all have, but it only seems to come to us at milestone events. A birthday, wedding, birth, anniversary, diagnosis, reunion, or death suddenly floods us with memories and emotions.

With major events, the media help stir up these feelings. This week the death of Senator Ted Kennedy once again brought forward those memories of both his life and that of his brothers and family. The past year has been a rather reflective one for the American people with the economic crisis, the election and inauguration of President Obama, and the recent deaths of Michael Jackson and now Senator Kennedy. Every event means something different to each of us.

In reading the many posts for this blog, you have seen some of that same reflective tone because in essence many times we must look back to move forward. In my line of work, I see some of the trials and tribulations of others and try to learn from them. I know as educators, you also catch those glimpses of your students' lives, and try to educate, help, and support them in the time they are with you.

Finally, I have been asked on occasion about the somewhat reflective nature of some of my posts, and I am reminded of a quote a high school educator once recited to my class as to why we study history:

"There are three methods to gaining wisdom. The first is reflection, which is the highest. The second is limitation, which is the easiest. The third is experience, which is the bitterest." - Confucius

Reviewing Your Diversification

2009-08-30T11:36:00.000-04:00

Reviewing your account and its holdings is important to insure that you continue to be well diversified. The market has been strong overall in 2009, and especially since March 10 (market low) with the S&P 500 rising essentially 50%. If you are always waiting for the market to improve before making your investments, you run the risks of missing the big advances but being around for the pullbacks.

As I have discussed in previous posts, while the entire market may be moving forward, some parts parts may be lagging or growing faster than others. Since it is impossible to know which will be moving where, you place certain percentages (based on your age, circumstances, and risk tolerances) in various areas to spread your risk.

Some people believe that you simply look at last year's returns and pick the winners... bad move. If you remember, in January I wrote a post titled 2009 Investment Options for Your 403(b). In that post I said, "..., do not look at last year's return to just make your choices. Last year was a great year for government bonds, but this year could end up being a bad one for government bonds because they already are so highly priced which is only compounded by a very low yield. If you just feel like you have to buy them, do very little or just hold cash instead." Well, interestingly enough... I have been right. Through Friday, August 28, the US government bonds have a -2.8% return and the US government long term bonds have a -7.7% return. Cash would have been better.

Thinking about the same post from January, I also said, "After the credit markets were essentially beaten down in 2008, bonds of very high quality companies (usually called investment grade bonds) were sold down quite heavily and are still selling at a discount. If we are to believe that the U.S. economy will recover, and it will, then these bonds could enjoy some price recovery back to par along with the yield." I went on to add that if you really wanted to buy bonds in your account, please look at investment grade corporate bonds - I also gave one example of a fund available in AIG VALIC accounts. The return on the Vanguard Investment Grade Bond Fund I mentioned through Friday was +13.7%. Additionally, I discussed investing a TIPS (inflation protected bonds) as another fixed income investment, and it's return was +6.9% YTD.

What does the above mean? Really, I just want to point out that following last year's winners or even just being "safe" could in the end limit or even hurt your performance. Also, having some knowledge in the area is important. A math teacher does not teach history and vice versa. Knowledge matters.

We will all make good and bad decisions (including those knowledgeable), and the benefit of diversification is that a bad decision in one area could be countered by a good decision in another area.

Another important aspect is "rebalancing" your accounts. This means essentially getting your diversification back in line with your original allocations. Most sites allow their participants to "rebalance" their portfolio, and doing so once a year is a great idea. Don't pile everything into one category because it has done well. Instead, continue your allocations and your account (and possibly mind) will thank you.

Looking at the index returns for 2009 (this is a link to Morningstar's Index Returns site), Mid Cap and Small Cap have outpaced Large Cap. Growth has been better than value in large caps. Corporate bonds have beaten government bonds. International markets (especially emerging markets) have outpaced domestic markets (this is partly due to a weak dollar). No one could have predicted all of the above, so being invested across all of these areas should have helped your account.

Remember, broad diversification is important, and understanding that you may need help can be just as important. Don't be afraid to ask questions... I think I heard one or two teachers say that in class.

Can Social Security Be Fixed? Can Windfall Elimination Be Included?

2009-08-29T10:00:00.002-04:00

As the old saying goes, there are few things in life that are guaranteed... death and taxes. Since 1935 though, Social Security (SSA) could have been added to this short list, but will it remain?

Over the years I have had numerous discussions with colleagues and clients on the impending problem of SSA. Every election year we hear that the politicians are going to address it, but political pressure always pushes it back for another time. No one wants to be the bad guy because it will interfere with their plans for their political future.

There are strong senior groups that say you cannot change the current system or benefits, yet if we are to insure that SSA will survive, we must stop waiting to address the problem and actually confront it. Remember, the baby boomers are coming...

So What Is The Problem?

Essentially, the system is running out of money, and there is no "trust fund" or "lock box" that has money waiting to fund it. All of the excess money over the years has been used to fund the retirees and for other government programs. The only thing in the "trust fund" are a bunch of IOU's from the government.

All of the deficits that the government has had would have higher had the SSA tax dollars not been included. Simple accounting... move money from the left pocket that is supposed to be saved to the right pocket that is spent.

The SSA 2009 annual report shows more contributions into the system ($590 billion) than distributions ($513 billion), BUT since the "trust fund" of $2.2 trillion is just IOU's from the government, the plan quite literally has zero money other than the government debt.

Now, let's look at a "real" pension plan. For example, the Georgia TRS (that we have discussed previously) had a current plan balance of $50.06 billion (FY 2008 ended June 30, 2008 - latest report available). In FY 2008, the plan took in $1.54 billion in contributions from employees and employers while it paid out $2.76 billion in benefits. Since the distributions only accounted for 5.5% of the total, it was a down year, and TRS raised contribution amounts for 2009-2010, the plan looks to be in extremely good shape (all figures from the FY 2008 Annual Report).

If the Georgia TRS plan funds were suddenly being used by the state to pay current expenditures (not allowed by the way), TRS would be in the same boat as SSA... but they are not. The TRS plan has an actual balance with actual investments - not just IOU's.

How To Solve the Problem?

First, there is no easy solution. The problem can be solved quickly, but the solution itself is not easy to come to grips with, so let's look at some possible solutions and decide what looks good.

Just raise the SSA taxes from $106,800 (2009 level) to a reasonable amount and index it to inflation.

This is good in theory as long as the raise is not too much. First, even Obama just pledged not to raise taxes on anyone making less than $250k, yet here we will be asking those making under $250k to be hit with the most regressive tax we have, and the small businesses (heart of the economy) will also bear the brunt of the tax (remember employers match the contribution).

This is part of the same group that will also be hit with tax increases to pay for whatever health care reform comes down. You can only squeeze so much before you hurt the consumer, the businesses, the economy, etc. Raising the limit will create more revenue, but do not take it too high or it will be a burden.

Just raise the full retirement age.

Another good option that should be included, and it should be raised to 70. People are living longer, this needs to be a consideration (not for those within 20 years of full retirement right now, but a simple phase up like before).

Best Solution - Combine Above

The best solution is to tweak items all the way around including benefits to lessen the blow on employees, employers, and retirees. This is a shared benefit that should be a shared burden.

How Do We Solve the Windfall Elimination Provision?

It seems as if my blog titled "Windfall Elimination Repeal - The Congressional PR Two Step" on July 26 struck a nerve. In my post I discussed H.R.235 - Social Security Fairness Act of 2009 and S.484 - Social Security Fairness Act of 2009, and how even with overwhelming bipartisan support, neither bill has a chance due to the price tag.

If Congress were to work on the WEP issue, how could they fix it? For most educators, it seems the issue is receiving the spousal benefits. This is definitely an issue. It does trim the price tag some, but if we are fixing the whole system, we should definitely lump this in as well.

By the way, there is always the "loophole" solution (work your last five years before retiring in education in a system that pays into SSA), but this means changing jobs just when you are in the final stages of your career. I see this as a "final option" because of the strain it obviously puts on the educator. This is especially tough if you have been in the same system for 25 years.

I do believe that it is wrong that my wife would not receive very much (if any) benefit from my contributions (and my employer's) to SSA because of her income from her pension. If we were both deceased, then they can keep the money, but at least let my wife enjoy some of the fruits of my labor if she survives me. Realistically though, I see Congress continuing to do little.

One solution that some colleagues and I have tossed around though is allowing the equivalent of one full SSA payout between married couples with one non-educator and one educator (that did not pay into SSA for 15+ years). The spousal benefit to the educator at the non-educator's death would be a continuation of the non-educator's benefit.

This scenario limits the spousal and SSA covered employee benefit while both are alive, then allows the educator the SSA income that they are used to if the SSA covered employee dies first. Having a spouse die is tough enough and having that death adversely affect your income should not become a burden.

Final Thoughts

This is a tough topic to cover in one post, but I tried to give some of the basic issues surrounding SSA and WEP repeal. The main issue on both fronts really is cost. We have a limited number of workers with limited incomes to tax, so we cannot just tax our way out of the issue. There really does need to be some changes to the system to continue to make it viable especially if it is to survive the Baby Boomer generation.

Additionally, I highly recommend reading the CNNMoney.com article by Allan Sloan called "The Next Great Bailout: Social Security." It is a very good read and covers many of the same issues with SSA from a bit of a different angle.

My view has always been that the contributions of one spouse takes away from the other as well, so why penalize the spouse? The system is designed to be a support system to those that paid into the system, and an educator's spouse did pay in. Why limit the income to the surviving spouse?

Are You an Educator With a Student Loan?

2009-08-24T11:30:00.003-04:00

Any time you have a debt that can just go away or be reduced, it is important to take advantage of it. For some educators, that could be a possibility with their school loans.

The office of Federal Student Aid, an office of the U.S. Department of Education, "plays a central and essential role in America's postsecondary education community." This office is also in charge of the Cancellation and Deferment Options for Teachers. Depending on several factors, an educator could conceivably be able to have their student loan(s) completely wiped out after five years.

Unfortunately, there is no easy way to know if you qualified without doing a bit of legwork, but the payoff would easily be worth the time and effort. The main items you need to know are what kind of loan you have, if you are considered a "teacher," and if your school is considered low-income school. This website - Cancellation/Deferment Options for Teachers - will start spelling it all out for you, but the equally important Teacher Cancellation Low Income Directory is a good place to start. If your school does not make the list, there is not much sense in going much further at this time. Check to make sure though it has not been listed at all during your five years.

Good luck to everyone in your hunt for information and reducing your debt. It's the first step in being able to get control of your finances and putting away even more money for your retirement.

Have I Been Avoiding Health Care?

2009-08-24T11:29:00.002-04:00

It seems that Congress is spending day upon day upon day on the health care issue and little has been resolved. I have been asked why I have not commented on the plans. Essentially, I have tried to stay out of the discussion in this blog because educators generally have fairly good insurance since they are usually grouped with other public employees in their respective state plans. Additionally, there are numerous plans floating about, so to comment on just one is tough when both the House and Senate are so different on what should happen.

I hope before Labor Day (when Congress returns) to have something of some value to add to the discussion. Nothing earth shattering, but just something to stoke the flames. If you have some ideas, I would be happy to hear them - rschultz@rollinsfinancial.com.

What Is a "Flight to Quality?"

2009-08-20T12:00:00.002-04:00

It seems that every industry has a jargon that they use in every day language. Writing across the curriculum, content specific, NCLB, AYP, detention (I believe I heard this once... may be twice), etc. In the financial world, we have numerous terms too, so today I will give you a couple to listen for in the future.

If you ever watch CNBC, Bloomberg, or Fox Business, you may have heard them say that "there has been a flight to quality occurring" or something similar. This may sound like some code, and it is for the financial world.

Simply put, a "flight to quality" is a the selling of risky investments and moving into safer investments. This can mean from international markets (which tend to be more volatile) to domestic markets or from stocks to bonds or in the case of 2008, from anything into government bonds.

Another term that sometimes coincides with "flight to quality" is "capitulation." This is a term that is used during a down cycle in the market. As the market starts to turn lower, you will have some people "capitulate" and sell out. When there is a mass of sellers, it is called "capitulation." The interesting thing about capitulation is that it usually signifies a bottom to the market. With everyone "out," the market theoretically can stabilize and start to rebuild to move higher...

Hope this helps make some sense of the jargon you hear from the media regarding the financial markets.