AAII Baltimore Presentation

Yesterday's AAII/Baltimore Chapter meeting featured a talk on "Retirement Income planning" by Michael Anselmi Jr. of Morgan Stanley Smith Barney.  It turned into more of a discussion rather than a structured presentation, and a couple of subtle issues were raised.

First off, by a show of hands, it was determined that more of the audience were retired government than probably most people expected.  Their pension and medical benefits puts them in a different boat than most retirees.

Secondly, Mr. Anselmi stressed the need to figure on spending as much in retirement as in one's working years.  One of the audience members pointed out a subtlety different way of looking at it.  He said he retired and figured out a conservative income by looking at his social security, pension, and a reasonable withdrawal rate from his "nest egg."  He then lived within his means.  This, he said, is how he did it throughout his working years.  To me, this is a bit different from the way financial planners tend to look at the problem.  Let me explain a bit further.
 
A financial planner will seek to determine how much a person is spending in his working years.  Next, s/he will estimate sources of income in retirement.  Then s/he will try to figure out how to get that level of income.  So, suppose the number is $90,000, adjusted for inflation and all of that, and suppose you need to get there; but when everything is considered, you are not quite going to make it.  What then?  The solution is to take more risk.  On average, if you take more risk, i.e. increase allocation to stocks, move bonds into high yield bonds, etc., the software will spit out results to get you to where you want to be - at least on paper.  This is how financial planners tend to approach the problem.

The viewpoint expressed above, I believe, is somewhat different.  It is more along the lines of saying I can conservatively generate $80,000, so that's what I'll do; and I'll learn to live on $80,000.  Trying to reach $90,000 entails some risk (no matter what the Monte Carlo results produce), and this alternative pushes back against taking that risk.

The discussion also brought out that retirees are probably more flexible than financial planners give them credit for.  At least this particular audience indicated an awareness of constantly reevaluating and making adjustments in down markets.

Mr. Anselmi did point out that retirees spend more when they first retire, then it falls off, and picks up again in their 80s due to medical costs.

A third point had to do with sequence of returns, a subject the audience was well aware of.  Relying on averages can be harmful to the retiree.  Most people have seen the diagram of the river crossing where the water on average is 3 feet deep, but most of the way the depth is 2 feet with one spot at 8 feet.  Walking across, the person drowns.  In the same way, relying on past results, that show markets return 8% on average, can be harmful if the lowest returns occur in the first few years of retirement.

There was some mention of variable annuities but, on the whole, audience members didn't seem to have much interest - understandable in a crowd that does its own investing.

The meeting also discussed long-term care insurance, assisted living facilities, and different investments for generating income in retirement.

Picking Stocks

Sometimes I feel like the judge in the flowing robe overlooking the courtroom. I have weighed the evidence to the best of my ability and have arrived at my considered judgment. Two conclusions: (1) Index at least 80% of your retirement money, and (2) to beat the market over the long run, your best chance is to pick stocks yourself and avoid the management fees.

Of course, there are many approaches to picking stocks. I attended a presentation on one approach worth considering, this past week, at the monthly meeting of the American Association of Independent Investors (AAII) /Baltimore . The presentation was by Timothy J. Reazor of Investor's Business Daily. The program was developed by William J. O'Neill and is referred to as CAN SLIM, an acronym for the data the approach looks at to identify stocks to consider. It breaks down as follows:

C: Current Earnings
A: Annual Earnings
N: New Products
S: Supply and Demand
L: Leadership
I: Institutional Buying
M: Market Direction

These seven criteria are measured or graded and, in some cases, subject to a high hurdle to gain listing as a stock worth considering. One of the values of the presentation was that Mr. Reazor took the group through a routine, with the IBD newspaper that takes maybe 30 minutes a day, that will find stocks worth considering. The routine encompasses voluminous stock specific and industry specific information with the bottom line objective of identifying stocks on the move.

For the serious investor, there is a top-of-the-line online service whereby a stock symbol can be entered and a rating obtained along with the top-rated in the industry.

For those who might be interested, there are meetup groups around the U.S. where presentations are made and you can talk to users of the program.

Disclosure: This isn't intended as an endorsement of IBD or the CAN SLIM approach. I am not affiliated with IBD and receive no compensation from them. This post is solely informational.

AAII/Baltimore Monthly Meeting

The American Association of Independent Investors will meet Saturday from 10 am until noon. The presenter will be Joseph J. Dankowski, and the topic, timely for DIY Investors in retirement or close to retirement, will be "Retirement Income Strategies".

AAII Presentation-The Case for Roth IRA Conversions

Matt Carbone, Regional VP Ameriprise, gave an excellent, thought-provoking presentation on this timely, complicated subject.

Three points that I found interesting were:
1. A Roth Conversion triggers a lot of side effects on, for example, AMT, Social Security taxes and Medicare premiums. A quick way to assess these impacts is to put the contemplated conversion amount on the 2009 tax returns and work through the implications.
2. In terms of one of the biggest benefits- the recharacterization feature - you generally can't "cherry pick" stocks etc. or parts of the portfolio that have dropped. One thing you can do is set up separate IRAs for your bonds, emerging market ETFs, Growth stocks etc. Then do the conversion, and if emerging markets drop, for example, 20%, you can recharacterize that part of the conversion.
3. If a child earns income, have them put a portion into a Roth IRA and partially match their contribution. With the contribution, have them buy a fund or an ETF. It is a great way to enhance their financial literacy.
4. An inherited IRA or Roth IRA is a windfall, and research shows that windfalls tend to be spent within 12 to 18 months of receipt. Ameriprise and some others have a feature where the inheritor receives the RMD up to a specified age and then receives the balance. This produces the value of the inheritance of getting long term, tax free, growth.

They recommended getting tax advice in determining whether a conversion is appropriate for you.

I am in no way connected with Ameriprise.

AAII Baltimore meeting

This month's American Association of Independent Investors/Baltimore Chapter meeting will be on "The Case for Roth Conversion". The speaker will be Matt Carbone, regional VP of Retirement Wealth Strategies.