Get a Free 12 Month Government Loan at 0% Interest for $15-$25,000 – Really!


If you are over 66 (and under 70) and not yet getting Social Security you can easily get a $15 – $25,000 loan from Social Security. It’s actually very easy to do and there is no penalty whatsoever. You just have to completely pay it back within exactly 12 months and no longer. It is best done at the very start of the year so that your 1099-SA (Social Security tax form) will show a full repayment in the same year. Just file form SSA-521.  

I actually did this in 2014. I filed and received my Social Security benefits effective January 2014 and stopped my benefits, repaying it all in December 2014. Each month I received my $2,600 benefit (the maximum payment allowed in 2014). Separately I paid my $104/mo Medicare payment and did not have any Federal Tax withheld. The net effect was that this money was invested in the market, I didn’t calculate exactly how much I made off of this loan but my overall investments were up double digits for the year. This was probably the easiest $2,000 or so I ever made.  

Unfortunately you can only do this one time!  

As you probably know from reading my other articles, I have no intentions of taking my Social Security benefits until I’m 70 years old since they grow tax free at 8%/year plus a cost of living increase compounded.


5 Advantages of Roth IRA’s you may not have considered



In the years leading to retirement you face a decision, whether to fund a Traditional IRA or a Roth IRA.

  1. Tax-free withdrawal. This you already know, however another major advantage of a Roth is that withdrawals are not included in any “income” calculations, including Social Security benefits or the current 3.8% surtax on net investment income above $250k for joint returns.
  2. No minimum distribution. Have a sizeable IRA in retirement is both great and a problem. The problem is that at age 70 ½ you must begin a Minimum Distribution from an IRA, and if you do the math, it isn’t so “minimum”. If you really don’t need this money, you first pay taxes on it as ordinary income, then you invest it into a taxable account and continue to pay taxes on it. The Minimum Distribution possibly raises your tax rate on your Social Security benefits. The Roth is 100% tax free after the age of 59 ½ with no requirements to ever distribute it.
  3. Penalty free withdrawal. If you fund a Roth IRA you can withdrawal your contribution with no tax penalty. A withdrawal from an IRA before 59 ½ incurs both income tax and a 10% penalty. A Roth can become an emergency fund if necessary.
  4. Estate planning. With a Roth you can pass your account to your heirs and other than an annual tax free withdrawal the account could continue for decades all tax free. The power of compounding could turn a modest account into a 7 digit account in no time. A Traditional IRS can be left to heirs but they must pay taxes on the annual withdrawals.
  5. Conversion flexibility. Let’s say that in January you convert $100,000 of Apple stock from a IRA to a Roth, you immediately incur a tax liability for $100,000 of income. Unfortunately by October 15th the market has dropped substantially and this investment is worth only $75,000. You can actually reverse the conversion (still only $75,000) and eliminate the tax on $100,000. This protects you in a down market. Of course if the market goes up as in the last few years you are even further ahead with a conversion.

Retirement Planning – A Safe Fixed Income Investing Strategy

Planning for retirement income is one of the most important jobs you’ll ever have. If you are like most investors you have a great “rear-view mirror, but very poor headlights”.


  • Many retirees need income from their investments to supplement Social Security and pensions
  • Fixed Income to many mean just buying bonds and bond funds (ETF’s)
  • Given the poor outlook for bonds during rising interest rate cycles many investors are looking for other methods of “Fixed Income” investing
  • A conservative stock portfolio with income producing stocks might look pretty attractive
  • There are tips for choosing these income producing stocks


Today’s retirees can’t rely on the traditional methods for securing income during their retirement, mostly bonds. As I’ve written before, current bond holders are going to face a huge shock when interest rates start to rise in the next 6-9 months. Many of you will think, oh good, interest rates are rising! However as they do your current bonds (or funds) will drop substantially in principle value. What good will it do to have a bond fund pay you 3%annually, drop by 15-20% in value? Just to be clear, some day it will pay handsomely for a retiree to buy bonds, when they yield 6-8%, but not now as they rise to that level.

What to do

The “Fixed Income” stock dividend theory says that you develop a stock portfolio of reliable companies with secure dividends that will pay you “bond level or better yields and just hold onto those investments. In this case you also have the possibility of capital appreciation over the years and dividend growth. Bonds do not have any possibility of dividend growth. For example, you buy a basket of blue-chip dividend growth stocks for $1,000,000 and they average 3% yield, or $30,000 a year in dividends. If, over a period of years your blue-chip stocks follow the average market return of 6% (or more) your $1,000,000 will grow by $60,000/yr compounded. Furthermore, many of these companies increase their dividend every year so the $30,000/yr also grows.

Tips for Choosing Income Stocks

  • It is relatively easy to research on line and find blue-chip companies that have a solid history of both dividend payments and growth.
  • Look for a large dividend supported out of free cash flow, not borrowing. Determine what % of free cash goes to support the dividend.
  • Choose stocks with growth potential
  • Here are some examples of dividend growth over the last 5 years:
    • McDonalds 14%
    • General Mills 12.5%
    • Phillip Morris 12%
  • Get help from sources like Morningstar or a web site I like

Here is an example of how this works:

I bought Altria (MO) the cigarette company in early 2014, it is a blue-chip stock with a long history of dividends increases. I bought it $34/share with at the time a $.48/quarter dividend or 5.6% yield. Today the stock trades for $51/share with a $52 dividend. Therefore, I’m up 50% on the value of my investment and the dividend has increased by almost 10%. Therefore my current dividend yield on my purchase price is over 6%. During this same time frame the S&P 500 up a shade less than 6%.


80% of Americans Ages 60-75 Fail Retirement Test – Take My Test of 11 Questions


American College of Financial Services in Bryn Mawr, Pa. released a poll this week based on online interviews of 1,019 people 60 to 75 years old with at least $100,000 in household assets. They asked 38 retirement literacy questions on basics, such as Social Security, life expectancy, IRAs, life insurance and investments, and how bonds work. Only 2 in 10 had passing grades! What a shame. Everyone needs to take responsibility for their own financial health, especially retirees. American College hasn’t published the actual questions they used, so I developed a few questions to help you test your retirement understanding.

Here is a Word document containing the questions and answers:

Retirement Test


Problems Getting a Mortgage if you are Asset Rich, but Have Little “Income”

So, you’ve worked hard all your life, saved and invested smartly and now you’d like to retire and enjoy yourself. That’s all well and good, but you might have a problem getting a simple mortgage.

Let’s say that you live up north, have your house paid off and would like to sell it and move to your dream house in Florida or Arizona. Maybe you have decided to delay your Social Security until you are 70 and earn 8% a year while you wait. So in effect, you have little or no income other than maybe a small pension or two and dividend and interest. Your financial advisor suggests you invest the proceeds of your house up north and take out a mortgage on your new Florida home. Since mortgage interest rates are around 4% and are tax deductible this might make good sense.  When you apply for your loan the new mortgage rules call for 43% debt to income ratio, but you no longer have “income”. Under the new rules the banks want to see a demonstrated process where you are already turning investments into income. Your substantial base might not qualify, as such, for even a smaller $100,000 – $250,000 mortgage.

Here is what you can do well before you try and apply for a new mortgage:

  1. Reduce your debt, you are retired and no longer have a paycheck. Once you get a budget in place you can go back to enjoying your new retirement life.
  2. Make sure there no other obstacles to getting a mortgage, for example your Credit Score. It is helpful to have an 800+ credit score.
  3. If you are going to hold your new house in a revocable trust along with your other assets, set it all up ahead of time. You’ll still need to meet the income retirements.
  4. Even though you want to delay Social Security until you are 70, start it at least 3-4 months before applying for your loan, you now have income. You can later (within 1 year) stop Social Security and send them all the money back, with no penalty.
  5. Modify your investments in your taxable account so that you are generating a good bit of monthly and quarterly dividend income. Check the ex-dividend and payment dates so that you can prove income.
  6. Set up a systematic, monthly withdraw from your brokerage account into your household checking account and make sure you have 3-4 months of proof these transactions took place.

With the above steps in place you should now have “income” to meet the debt/income ratio. You’ll feel pretty secure that once the closing on the new house has taken place and the boxes are unpacked you can reverse some of the steps shown.

Enjoy your retirement.


Retirement Planning Part 4 – What Should I Invest in While in Retirement

In Part 3 we discussed how to determine how much money you’ll need or have in retirement. In this post we’ll discuss what type of investments you should have in your portfolios.

Let’s start with the premise that your retirement plan calls for you to withdraw 4% a year from your investments to cover your expenses. This is a common benchmark used by many planning tools. A common recommendation is that you maintain an allocation of stocks vs. bonds that match your age, for example if you are 65 years old you would have 65% invested in bonds and 35% in stocks. We’ll look at your investment options.

What should I invest in?

  1.  First of all these general recommendations were pretty good when we had a “normal” market environment. 65% in bonds or any fixed income was not a problem since the US 10 year Bond yields from 1996 to 2006 ranged from 5% – 16%. If you wanted to withdraw 4% and were making 5%+ you were in pretty good shape. Today 10 year Bonds yield under 3%, with Bond prices surely headed down. Therefore you are stuck with a rapidly depreciating asset. Furthermore, you are withdrawing more than you are earning. Bonds today are safe, but not the best investment.
  2. Stocks, by comparison have had a pretty good run since the 2009 market lows. For the smart people (brave) people who hung on to their solid stock investments through the recession, they are now back to all-time highs. The poor people who were panic struck and sold at the bottom of the market and stayed in cash for a year or so, they are financially stuck.
  3. Given the current market conditions investors should look to overweight stocks, especially those with solid dividends. Many of these stocks have “bond-type” yields and have the possibility of both increased yields and growth in value. I’ll cover some of these possibilities in a separate posting, including stock preferred shares, MLP’s, BCD’s and REITS. For your general investment pick household names that have a solid track record of dividend growth such as:
    1. Verizon 4.37%
    2. Altria 4.23%
    3. American Electric Power 3.49%
    4. Proctor & Gamble 2.80%
    5. Microsoft 2.57%
  4. All of these recommendations need to be adjusted on an annual basis, just like rebalancing your portfolio. Some of these investments might be “buy and hold” but not “buy and forget” as I explained in a prior article. Some people think this is like day-trading, a risky practice if you’re not properly trained, but it isn’t. There are a few individual stocks you can keep forever, but many need to be swapped out. One good practice is to set goals when you buy a stocks, you need a purchase price and a sale price, before you buy. Don’t buy at the top and sell at the bottom.
  5. Many people may not feel like picking individual stocks, they are better off buying Exchange Traded Funds (ETF’s). ETF’s are usually better than Mutual Funds because they are more transparent and easier to understand. ETF’s trade like stocks, Mutual Funds trade based on a NAV, Net Asset Value, this is calculated at the end of each day.
  6. So what about bonds? It’s OK to have a small bond position today, just make sure they are of “short duration” and keep an eye on the core price. High quality corporate bonds are OK. As prices drop over the next 6 months get out and sit in cash or high dividend stocks until bond yields climb above 4 or 5% then start buying on a “ladder” basis.

In summary, you can’t withdraw 4% on an investment only yielding 2-3%, you’ll run out of money sooner than later. In the current market high quality, high dividend stock or stock ETF’s  are a safe bet.

In our next post we’ll discuss how some specific investments will help you grow your portfolio to meet your retirement needs.

Retirement Planning Part 3 – How Much Income will I Need/or Have in Retirement

In Part 2 we discussed some actionable items that can help you prepare for your retirement. In this post we’ll discuss how to determine how much money you’ll need or have in retirement.

Now that you are planning to retire and you understand there are no more “paychecks”, you need to determine how either how much money you’ll need in retirement. Of course we’ll also examine how much money you will actually have access to based upon your current savings, investments, pensions and Social Security.

How much will I need?

  1. First of all the common recommendation is that you will need about 80% of your pre-retirement income in order to retire without a major life style change. Therefore if you (your household) were making $100,000/yr. you should be able to live on $80,000/yr. in retirement. However, this may not meet your needs, for example if you currently make $100,000/yr. but carry significant debt or have other financial responsibilities you may need a lot more than 80%.
  2. The very best way to determine how much you’ll need is to develop a start from scratch, realistic expense budget. Be sure to include the cost of future healthcare insurance costs of buying cars, replacing appliances, vacations, etc. Also set aside a healthy emergency fund.
  3. You can now search on line for retirement planning calculators to help you determine how much money you’ll need to actually retire. I found that T. Rowe Price recommended 11x your retirement income, Fidelity 12x, and so forth. All of these have varying assumptions. Here is another examples:

BTN Research estimates that, assuming 5% average annual investment returns, for every $1,000 of monthly income you want over a 30-year retirement, you need $269,000 in the bank. Let’s consider that same household making $75,000 a year. To replace the commonly recommended 80% of income in retirement — or $60,000 in this case — the household would need $5,000 a month. In this calculation, this household’s number is $1.35 million, or 18 times final pay. A higher investment return would bring the numbers down.

 Dallas Salisbury, president of the Employee Benefit Research Institute offers: You need 33 times what you expect to spend in your first year of retirement—after subtracting Social Security benefits. Let’s take that same household, which spends every penny of its $60,000 income in retirement. Say this household collects $20,000 a year in Social Security. That leaves it spending $40,000 from other sources. So this household still needs a nest egg of $1.32 million, or just shy of 18 times final pay

 In summary, you need to use on-line tools to start building retirement plans that cover both your expenses and available income.

In our next post we’ll discuss how some investments will help you grow your portfolio to meet your retirement needs.

Retirement Planning Part 2 – Pre- Retirement Planning

In Part 1 we discussed some of the financial challenges many people face as they prepare to retire. In this post we’ll discuss some actionable items that can help you prepare for your retirement

One of the biggest shocks in your life will be the 1st day you retire and realize that you will no longer get a pay check next week. There will be no more “pay checks”. If you have a good plan in place you’ll be celebrating instead of fretting.

Here are some things you can do when you are within a few years or so of retiring.


  1. Accelerate your investments. We assume that as you are getting closer to retirement you’ll be in your peak earning years, and hopefully not peak spending years. Now is the time to max out all possible avenues of investments. Take full advantage of both employer 401K contributions and the maximum contributions you can make including all “catch-up” amounts. If you qualify contribute a maximum to your IRA or even better a Roth IRA. If you have the option of a healthcare HSA account, take it and fund it to the max. Unless you are a great stock-picker put this money into low fee S&P Index Funds or ETF for now.
  2. Substantially reduce then eliminate debt. Many people can’t afford to retire not because of their core daily survival expenses but their payment on debt. Parents might still owe on college education for their children. Some carry massive credit card debt, car loans, home equity loans, etc. You just can’t afford to retire with this debt overhang. Why, because the interest expense say 8 – 20% far exceeds any investment growth one can count on. What to do: develop a plan to completely eliminate all debt ASAP. Stop spending on all non-critical items until all debt is paid off.
  3. House mortgage payments need some discussion. The best situation is to retire with no house payments. Typically mortgage payments are your largest monthly expense. If you are carrying a large mortgage seriously consider downsizing to reduce or eliminate your mortgage. Consider moving to a much lesser cost of living location that will allow you to get much more value and maybe a meet your retirement dreams. For example, we moved from Philadelphia area to Tampa which eliminated our local and state income tax, substantially reduced our property tax and meet our retirement dreams.
  4. Build substantial cash reserves. Once debt is gone you’ll need to build cash, completely separate from your accelerated investments. You should have one full year of expenses in cash at the time you retire. You need an emergency fund and really don’t want to start withdrawals from your investments immediately upon retirement.
  5. Start building a retirement budget that considers you no longer have a “pay check”. The old adage is that you’ll need 80% of your former annual income to live on in retirement. However you may not have this money available to you for the next 30 years.

In summary, in the years leading up to retirement it is time to eliminate debt, accelerate investments and build cash.

In our next post we’ll discuss how much you’ll need in investments, pensions and Social Security to retire.

you’ll need in investments, pensions and Social Security to retire.