[jdsl1998]

I'd buy another home in TV so the kids wouldn't have to fight over this one....

[Boomer]

Originally Posted by jrjr729

..............................

If you do not like your current mix of stock investments, consider becoming a bit more defensive y buying consumer staples and shifting into high dividend paying stocks.

Finally, although annuities have there place in some portfolios they might not fit in yours. After all, if you have a well funded pension that plus social security means you already have two annuities. Do you need more?

Hi jrjr,

While I hope we all know that nobody should be taking investment advice from somebody posting on a forum, I enjoy the discussions and have to throw in my opinion from time to time. It can be fun to bounce some ideas around.

I will say that the last two points you make here in your post, I can mostly agree with.

But about that word "high" in front of dividend. I have to fine-tune that one just a little. So jrjr, please bear with me here. I bet you already know all this.

All dividends are not created equal and if a dividend looks too good to be true, it just might be. An investor needs to look at dividend history. How long has the dividend been paid and how consistent is the history of increases? Also, I have to know the company. Know what they do. I have to understand the company. A dividend that is way high may be ripe for being cut. In my unschooled, not-a-professional, sleep-at-night book of investing, if something looks out of whack, it probably is.

And I know that this is the old buy and hold philosophy showing. Catching a good solid company when it is down can give you a decent dividend while you wait for the price to go back up. I can't look just at that percentage return of the dividend. For me, it is relative to all the other stuff I have to think about. But like you, jrjr, I like good dividend paying stocks. In fact, I will not buy a stock that does not have a dividend.

I do not think anybody who is now retired or close should be putting anything at risk that they will need for retirement expenses. That's my "bird in the hand" philosophy. I have seen too many people retire based on the projections of some investment "expert" who was plugging numbers into a computer and spitting out such a pretty picture.

And as far as the market now is concerned, I think all bets are still off. We have never seen anything like this mess. It has grown arms and legs all over the place. We have no means of comparison in our economic history. Meanwhile, my little buy of a few shares of Kraft is doing well. I just felt like mac and cheese was a good bet. But who really knows? I sure don't. I think it is going to be a while. But my cup of Maxwell House is half full.

Boomer

[jrjr729]

Good points, Boomer. When I look for high dividend yielding stock I generally focus on utilities in areas with relatively stable populations or in lieu of that utilities that have diversified revenue flows.

[Boomer]

Originally Posted by jrjr729

Good points, Boomer. When I look for high dividend yielding stock I generally focus on utilities in areas with relatively stable populations or in lieu of that utilities that have diversified revenue flows.

Hey, jrjr,

I hear you. Utilities 'R' Us.

But please always remember that I have no idea what I am talking about. And I really do think all bets are off. Who knows? And like I have said before, I have a deep-seated fear that someday I will throw all caution to the wind and start investing in Beanie Babies and Pez dispensers. But for now, I remain cautious. And I am still as mad as a wet hen over this whole big mess. And whether we individually took big hits or not, we all are affected, or will be, in one way or another.

Boomer

[jrjr729]

Hey Boomer,

Forget the Beanie babies and Pez dispensers. Try calculators, instead. after teaching college for over thirty-six years I can tell you that calculators will be in great demand if there is a major collapse. Nobody can do simple arithmetic anymore.

By the way a good tool for analyzing a dividend stock is to divide the dividend per share by the earnings per share. If the result is greater that 100% do not purchase the stock it means the company is cannibalizing itself to continue to look good to its shareholders. Some companies like utilities will have high percentages, say 75% or more but that's just because they normally pay high dividends.

[Boomer]

Originally Posted by jrjr729

Hey Boomer,

Forget the Beanie babies and Pez dispensers. Try calculators, instead. after teaching college for over thirty-six years I can tell you that calculators will be in great demand if there is a major collapse. Nobody can do simple arithmetic anymore. .................

Uh oh, jrjr,

I was just about to move forward today with my real life, where I talk to people I can actually see, when I looked back and saw your post, fellow utilities fan.

I am known to digress a little from time to time. Never could color inside the lines. And when I saw this part of your post, I thought, "Ohhhhhhhh, I just have to make sure this person knows about this story. I cannot leave this morning until I make sure."

So here goes......

If you do not already know about a short story "The Feeling of Power" written by Isaac Asimov, a long time ago, then you absolutely must get your hands and eyes on it. You will love/hate it. It is about exactly what you just said.

I am not a huge science fiction fan, but I know a little bit about some of the biggie sci-fi authors from the last century. And I always say that good science fiction makes the reader stop and think, "Could this really come true?" And then the reader looks around the present for signs that it could. But then the reader could start to lose a lot of sleep. Kind of like reading Orwell.

So anyway, if you have not read this story, please, oh please, get thee to a library and find it. This one's for you, jrjr.

And now I must get back to acting like I am talking about investments in this post so as not to digress way too far and be accused of being an English major. Soooo, about those dividends.......

Boomer

[cabo35]

Thank you all so much for contributing to this thread. I sincerely appreciate the thoughtful insights and perspectives you shared so unselfishly. Your collective suggestions are better than most professional planners I have spoken with. They are very helpful....and.....your consulting fees are the best.

[NJblue]

Sorry for being late to this discussion - I hope it's not so old that people have stopped reading or adding to it.

As recent retirees, we are currently exploring our investment options and have attended various lunch/dinner seminars and had a few follow-up meetings. This is what I have found out:

Indexed Fixed Annuities - the concept is that you buy an annuity that is tied to some index (e.g., S&P 500). The annuity guarantees that your principal is never lost but yet allows you to profit from the upside in the stock market - hence is sold as a good hedge against inflation. The problem is that the rate that the index is allowed to go up is severely capped (perhaps 5-7%). That is, if the S&P goes up by 15% in a year (which is not uncommon in an up year, especially in a high-inflation period), the annuity only goes up by the capped amount - 6.75% in the case of the product that one agent is trying to sell us on.) Sure, the account value won't decrease, but the cap means that your annuity is a very poor hedge against inflation. So, if we get back to double-digit inflation rate as many are suggesting we are headed for because of our increased deficit spending, while stocks may keep up with inflation, the annuity will lose buying power each year. That's my take on it, but will welcome contradictory views.

Variable Annuities - Several companies (Prudential and Axxa are two that I know of) have products out that offer both an account value (that can go up AND down relative to the market) and another value (I call it an "annuity account" that is used to determine annual payments if you decide you want to annuitize your fund rather than take out the principal. This latter value is tied only to market gains. That is, if your portfolio value starts at $100K and goes up at some point during the year to $125K, the $125K becomes the new basis for which annuity payments are made. This value is locked in and will never go down, but can ratchet up even more if your underlying account value at some point goes even higher before you start taking money out of the account. The nice thing is that at whatever point your annuity account reaches a new high, from that point until the next high, your annuity account will grow at 7% per year. There are some attractive features added concerning death benefits and others. One downside to this is the higher fees that are charged to cover the profit and added risk that the insurance company is taking. The other negative as I understand it is that though this appears to offer reasonably good inflation protection while it is in its accumulation phase, once you start to take money out, I believe it is a fixed percent of the value of the annuity account. Hence any inflation from that point on will not be addressed. I am still evaluating this option to see if it makes sense.

Indexed CD As I understand them, they are like a CD in that the initial principal is guaranteed by the FDIC, but the interest rate is not fixed but rather can go up based on the increase of an index such as the S&P 500. I believe that annual increases in this CD are taxable, so it probably makes more sense to own it in an IRA or other tax sheltered vehicle. This also sounds intriguing to me but I need to learn more.

[spk7951]

Do not forget to look into the tax consequences involved with annuities. When we were looking into annuities last month we were told that we could expect to pay higher income taxes when drawing a monthly check from an annuity vs using our existing CD's.

[Autoshow]

Originally Posted by KayakerNC

Index funds with a guarantee?
Or did you utilize some sort of an annuity package?

I would be a little scared when someone tells me 10 percent now and 13 percent later

[NJblue]

Originally Posted by spk7951

Do not forget to look into the tax consequences involved with annuities. When we were looking into annuities last month we were told that we could expect to pay higher income taxes when drawing a monthly check from an annuity vs using our existing CD's.

I am aware of the consequences of annuity payments versus dividends and/or capital gains from a portfolio of equities (the annuity is taxed as income and the the others are at a reduced rate - for now). However, I'm not aware of any differences between interest from CDs versus annuity payments. It seems that both are charged as income. Can you elaborate?

[spk7951]

Originally Posted by NJblue

I am aware of the consequences of annuity payments versus dividends and/or capital gains from a portfolio of equities (the annuity is taxed as income and the the others are at a reduced rate - for now). However, I'm not aware of any differences between interest from CDs versus annuity payments. It seems that both are charged as income. Can you elaborate?

You are correct that they are both equally charged as income.
For us if we held out of a CD what we needed for the year vs getting an equal monthly amount from an annuity that is where we had a tax concern. The interest rate paid on CD's right now is so low that we would have paid more in taxes by changing to an annuity vs the CD dividends.

[mgm4444]

I'm a little confused. If someone took 250K out of the market and put it into CDs, - what is constituted as "income" ... as in ...."Obama has proposed higher taxes for families earning more than $250,000 a year". Is the 250K AND interest "income", just the interest or is the entire 250K seen as "income"? -- many thanks !

[NJblue]

If you had 250K in the market, meaning the stock market, you would have been paying taxes on the "interest" all along in the form of the taxes imposed on dividends that the stocks were generating. The only taxable event that occurs when taking money out of the stock market is any capital gains that may result. Hence if you bought your stock portfolio a number of years ago and paid 200K (i.e., its cost basis), then your capital gains would be 50K (250-200=50). You would then pay capital gains tax on the 50K. The current maximum rate for this is 15% which is likely better than if the gains were taxed as ordinary income.

[Boomer]

Originally Posted by mgm4444

I'm a little confused. If someone took 250K out of the market and put it into CDs, - what is constituted as "income" ... as in ...."Obama has proposed higher taxes for families earning more than $250,000 a year". Is the 250K AND interest "income", just the interest or is the entire 250K seen as "income"? -- many thanks !

The $250,000, the principal, is not taxed. The interest generated by the principal is taxed.

401's and certain other employer retirement accounts can be rolled over into IRA CD's and remain tax-deferred. But you have to be sure that you do the rollover right so that you do not trigger tax consequences earlier than you need to. (It's not that hard to do it right though. Ask lots of questions along the way if you need to.)

There is some fairly recent news on the FDIC insurance coverage of bank deposits. The FDIC's temporary increase in coverage from $100,000 to $250,000 was set to expire at the end of 2009. But the timeline for the increased coverage has been extended through December 31, 2013. After that date IRA accounts are to remain at the $250,000 amount of FDIC coverage, as they have been for the past few years. But other accounts are slated to revert to $100,000 coverage. See www.myfdicinsurance.gov for details.

If you go to this particular FDIC site, the opening picture is of Suze Orman. It is a .gov site, but Suze Orman must have worked with the FDIC to get things set up to be easily navigated. Orman's investment advice is really conservative, and she is committed to making financial education accessible and clear.

Yes. I know that Suze Orman can get quite dramatic on her show when she starts hollering, "YOU CANNOT AFFORD IT," at those silly people who call her up and ask about buying ridiculous things. But those people deserve to be hollered at. And so sometimes I help Suze holler.

I used to holler a lot at Alan Greenspan when he was on television giving money away. But he never listened to me. I would get so aggravated with Al. How lowwww could heeeee go.......I know the Fed fears inflation, but..........

And, yeah, I know Alan Greenspan used to party with Ayn Rand. But maybe he should have been partying with Boomer.

Boomer

PS: Please do not forget that I have no piece of paper that says I can give financial advice. And I have no financial alphabet designations after my name. My financial musings and theories and advice are worth exactly what you pay me.