Arizona is an interesting place (and I’m not just talking politics and Spring Training).  The lowest point is just 70’ above sea level on the Colorado River in Yuma and the highest point is 12,633’ on Humphreys Peak near Flagstaff.  I wonder when the last time that was checked.  Seems like erosion might have knocked a couple feet off since it was last measured. We have 6 distinct climate zones.  Friday 5/5 it was 108° for the high, Sunday 5/7 it was 74°.  Someone won the annual “First 100° Day” contest on the Wednesday before.

Because of late winter rains, it has been a pretty good year for wild flowers. We got out a bit and saw many varieties.  Poppies, lupine, brittlebush, hedgehogs, saguaros and more.  Many are actually right in our yard. Below are some from an outing two weeks ago.  I’m not going to attach a lot, but, you can see much more in a quick web search for Arizona Wild Flowers.

Many people picture Arizona like this:

Barren, dry desert

My version of the state looks more like this:

Table Top Mountain

Or like this:

Maples near Bear Canyon Lake.

Of course, the last one was fall.  That doesn’t mean those red-leafed maples aren’t just as pretty in the spring when they are leafing out.

Traveling the state, I often wonder what early natives’ lives were like. Tribes stretched from those lowest elevations in Yuma up to over 7000’.  I’ve been to dozens of prehistoric sites in Arizona. Like us, they strived for a summer and winter home.  But, unlike us, they didn’t have the benefit of turning on their air conditioning for that first 100° day or have the heater running when it got cold. They followed the food sources rather than having it shipped to the local supermarket.  I wonder what they were thinking about while sitting up on a ridge pecking out messages for me to read hundreds of years later.

Petroglyphs near Brooklyn Mine Hotel

Nice Buck!

I guess we’ll never know.  But, it’s pleasant to sit on the porch with your favorite beverage and think about them.

Best wishes for your spring!

Richard Oxford Financial being interviewed by Aging in Arizona Hosts.

In March, my firm Richard Oxford Financial, had the pleasure of being hosted on the Aging in Arizona radio show by Presley Reader and Mark Young.  It was my first “in studio” interview and I had a great time. Both hosts were both knowledgeable and generally entertaining.  It’s a great show on 960AM radio here in the Phoenix area.

We hit on a variety of topics of interest to retired persons and anyone who plans to someday retire. Some of the topics include Income Planning and methods of funding Long-Term Care.

While all good retirement advice should be personalized, many topics have a lot in common for most of us.  Each of us need be concerned with ways to create permanent income in retirement.  Each of us need not neglect our exposure to needing Long-Term Care.  Without a doubt, both topics will affect you or someone you know.  It is inevitable!

As I often say, “Plan Early and Plan Often!”

Have a listen and enjoy!  Richard Oxford Interview

How to Create Retirement Income!

Few of us are building pensions anymore.  Social Security doesn’t seem as “secure” as the name implies. So, what are working stiffs supposed to do?  Where are we supposed to get our Retirement Income? What about a small business owner?  Obviously, the answer is different for each of us, but, there are commonalities that we can discuss in open forum without doing a full analysis of your personal situation.

Creating Retirement Income!

If they have average earnings about 40% of an average retiree’s income in retirement is filled by Social Security (www.ssa.gov). The balance of your needs will have to be fulfilled from your savings in one manner or another. The following is a discussion of commonly used methods.

LIVE OFF OF INTEREST ONLY

In years past, I met several retirees that had no intention of ever touching the principal of their savings.  This method was working back when interest rates were 5% and higher. Now, with CD rates hovering around 1%, it becomes very difficult. Imagine someone needing to generate $2500/month at a current annual CD rate of 1.25%.  That person would need $2.4M in CD’s.  Fixed annuities are in the 3% and under range so they aren’t much better.

What about if we tried it with high quality bonds?  Well, as of this writing, Moody’s Aaa bond yield averaged 3.43%.  The same $2,500/month would require an investment of about $874K.  The issue with this type of investment is that your money is at risk.  While you may be living off the interest, your principal is at risk.  As interest rates go up, bond values drop. As you can see, this time of historically low interest rates are killing this plan.  All interest is taxed as ordinary income.

THE 4% RULE

“The four percent rule is a rule of thumb used to determine the amount of funds to withdraw from a retirement account each year. This rule seeks to provide a steady stream of funds to the retiree, while also keeping an account balance that allows funds to be withdrawn for a number of years. The 4% rate is considered a “safe” rate, with the withdrawals consisting primarily of interest and dividends.” (INVESTOPEDIA, http://www.investopedia.com/terms/f/four-percent-rule.asp)

The theory behind this rule is that if you begin withdrawing 4% annually and increase the withdrawal 2% annually (inflation), that you should be able to fund 30 years of retirement.  Emphasis on the word “theory”.  For this sort of plan to work, you cannot have losses early in the process.  Also, remember that the 4% paid to you is a variable. If you begin your retirement with $1M in savings, your initial annual income would be $40k.  If you take $40k and also have a 10% loss for the year, you now have $864k.  4% for the next year would be $35,251 (with your inflation increase). You see how this might work.

Many investment advisors shy from these sorts of “rules of thumb” because there are too many variables that the advisor cannot control.  Some or all of the income may be taxable depending upon the account type.

ANNUITIZATION

Annuitization is the process of converting money from an asset into a series of payments.  Those payments can be a period of time or for your lifetime.  Your pension or social security deposits are converted to income through annuitizing those assets.  Many people do not like annuitizing as they no longer control the asset.  It is very effective for creating your own personal pension, but, in low interest rate environments, the payouts will be relatively low.  Gains paid out are taxable.

INCOME BENEFITS FROM ANNUITIES

“Living Benefits” have been around for quite a while and many iterations.  There are two basic types of income benefits (with respect to payouts): Guaranteed Minimum Withdrawal Benefits and Guaranteed Minimum Income Benefits. Both are similar in that they guarantee a minimum rollup of income value during the accumulation phase.  The income value can be converted to a guaranteed lifetime income at some point in the future.  Gains paid out are taxable.  

There are many ways to access this kind of benefit.  Done properly, it can make a significant difference in the remaining value to a spouse of beneficiary.  Done improperly, an annuitant or owner can lose significant value.  Significant as in 20-60%.  Consult a knowledgeable professional before attempting this by yourself or referring to a website.

CASH VALUE OF LIFE INSURANCE POLICIES

Some types of whole and universal life policies have the ability to accumulate cash value that can later be borrowed from the policy.  In many cases, with a properly designed policy, these loans are tax free.  There are very few other mechanisms that turn out “tax-free” income besides a ROTH.

This is not an exhaustive list of ways to create income in retirement, just some of the more common methods being used today.  Please realize that the last two methods take time to mature.  You need to plan!  As Winston Churchill said: “Failure to plan is a plan to fail”! Talk to a financial advisor and plan early and often!