Tag: Dennis Miller

10 Ways to Screw up Your Retirement

By Dennis Miller, Senior Editor, “Miller’s Money Forever”

There are many creative ways to screw up your retirement. Let me show you how it’s done.

Supporting adult children. My wife Jo and I have friends with an unmarried, unemployed daughter who had a child. Our friends adopted their grandchild and are now in their late sixties raising a kid in grade school. The same daughter had a second child, and they adopted that one too. When she announced she was pregnant a third time, they finally said, “Enough! It’s time for a third-party adoption.”

Last time I spoke with them, their unemployed daughter and her boyfriend were living in their basement, neither contributing financially nor lifting a finger around the house. What began as a temporary bandage had become a permanent crutch. Our friends love their grandchildren; however, they’ve become bitter.

Jo and I also know of retirees who make their adult children’s car payments. I’m not talking about college-age kids; some of these “children” are close to 50. What’s their justification? “If we don’t make the payments, they won’t be able to go to work.” What I can’t grasp is how these adult children have iPads and iPhones, go on vacations, and do other cool things, but can’t seem to make their car payments.

You are not the family bank. There is generally a brief window of opportunity between children leaving the nest and retirement. Use it to stash away enough money to retire comfortably!

Ignore your health. I served on the reunion committee for my 50^th high-school class reunion. We diligently tried to track down our classmates, but many had not lived long enough to RSVP to the party. The number of deaths from lung cancer and liver cancer were shocking. Many of those six feet under had been morbidly obese or simply never went to the doctor for checkups.

I know this sounds obvious, but your health choices really do affect how long and how well you live. Retiring only to become homebound because of health problems won’t be much fun.

Not keeping your retirement plan up to date. In the summer of 2013, the Employee Benefit Research Institute (EBRI) published a survey about low-interest-rate policies and their impact on both baby boomers and Generation Xers, who are following right behind. The bottom line (emphasis mine):

“Overall, 25-27 percent of baby boomers and Gen Xers who would have had adequate retirement income under return assumptions based on historical averages are simulated to end up running short of money in retirement if today’s historically low interest rates are assumed to be a permanent condition, assuming retirement income/wealth covers 100 percent of simulated retirement expense.”

It is a sad day when people who thought they’d saved enough realize they have not. Run your personal retirement projection annually to make sure you’re keeping up with the times. Otherwise you may have to work longer or step down your retirement lifestyle—drastically.

Thinking you can continue working as long as you wish. While age discrimination is illegal, you may not be able to work forever. If illness doesn’t push you out the door, your employer might downsize (we all know who goes first) or buy you out with a lucrative lump sum.

Many companies want older employees off the payroll because their healthcare costs are high; plus, they are often at the top of the salary scale. More than one employer has made the workplace so uncomfortable that an older employee felt he had to quit. Other employers will systematically build a case to terminate a senior employee with their legal team waiting in the wings to help.

Whatever the reason, you may have to stop working even if you enjoy your job, so plan for it.

Not increasing your rate of saving. A surefire way to end up short is to pay off a large-ticket item like your home mortgage and then continue spending that money every month. Start paying yourself instead! Don’t prioritize saving after it’s too late to benefit from years of compounded interest.

Continually taking equity out of your home. Too many of my friends have been duped into taking out additional equity when refinancing with a lower-interest mortgage. If you can secure a lower rate, use it to pay off your home off faster. When you have, start making those payments to your retirement account.

Retire with a substantial mortgage. The general rule of thumb is your mortgage payment should be no more than 20-25% of your income. If you retire and still have a mortgage, it might be tough to stay within those guidelines.

Taking out a reverse mortgage at a young age. Debt-laden baby boomers are taking out reverse mortgages at an increasingly younger age. Just read the HUD reports. Many have very little equity to begin with and use a reverse mortgage to stop their monthly bank payments for pennies in return.

Locking yourself into a fixed income at a young age is a great way to kiss your lifestyle goodbye. Many of these young boomers will find themselves wondering, “Why is there is so much life left at the end of my money?”

Putting your life savings into an annuity. While annuities have their place in a retirement portfolio, going all in is dangerous, particularly at a young age. After all, your monthly payment depends in part on your age.

I know folks who put their entire life savings into variable annuities. They thought they were buying a “pension plan” and would never have to worry again. The crash of 2008 slashed their monthly checks, and they have yet to recover. Retirement without worry is not that simple.

Thinking your employer’s retirement plan is all you need. The era of pensions is gasping its dying breath. We have many friends who retired from the airlines with sizable pensions. When those airlines filed for bankruptcy, their pensions shriveled. No industry is immune to this danger, so we all need a backup plan.

Government pensions are following suit. Just ask anyone who has worked for the city of Detroit! While the unions are fighting the city to preserve their pensions, an initial draft of the plan indicates underfunded pensions (estimated at $3.5 billion) may receive $0.25 on the dollar.

Don’t fall for the trap! If you work for the government, you still need to save for retirement. Contribute to your 457 plan or whatever breed of retirement account is available to you. The federal government has over $100 trillion in unfunded promises, and many state governments are woefully underfunded. That doesn’t mean your retirement has to be.

Reverse mortgages and annuities are often the undoing of many income investors and retirees. They can be used properly, however, if your situation or the opportunity fits with your needs. With all of the misinformation out there about these two products, we decided to pen two special reports to help you decide whether these are right for you. They are The Reverse Mortgage Guide and The Annuity Guide. Check out one – or both – today and learn where, if at all, these fit your needs.

Escape the Toy Trap

By Dennis Miller

The toy trap: we all have friends who’ve fallen in. I received a wave of emails after publishing Debt: The Last Social Taboo?, all sharing similar sad stories. Author Dave Ramsey summed up the problem best: “We buy things we don’t need with money we don’t have to impress people we don’t like.”

Malcolm Forbes, lover of all-things extravagant, likely originated the phrase “He who dies with the most toys wins.” Few of us could ever afford Forbes’ Fabergé egg collection or the ostentatious parties he threw, but many a retiree or near-retiree has overspent on cars, boats, homes, and a surgically enhanced trophy wife or two.

My wife Jo tells me this isn’t just a “guy thing” either. She has friends with two or three closets filled with designer clothes. We have one friend who’s been retired for over a decade,  who still makes monthly trips down Michigan Avenue in Chicago to shop, shop, shop. Her closet is full of enough fur coats to spark a PETA riot.

So is there room in 2014 for a return to financial modesty—room to reject the toy trap? I say yes! Here’s our five-step guide to doing just that.

#1—Someone always has a bigger, faster boat. Playing the game is futile, because no matter how much wealth you have, you can’t win. Someone will always have more.

Rush Limbaugh once boasted about buying the newest, biggest, fastest Gulfstream jet, a G650. He mentioned something about flying nonstop from Raleigh to Honolulu with 20 of his best friends.

I won’t begrudge a man any toy he can truly afford, but Limbaugh is in for a rude awakening. As far back as 2009, the CEO of Gulfstream’s parent company had already announced it was working on developing a plane “beyond” the G650. What will Limbaugh do then? In the meantime, some oil baron from the Middle East is looking down from his 747 with a smirk on his face.

I was on a 13-hour flight from London to Miami years ago and totally bored, so I made a list of all the material things I would love to own. Yeah, I included a private jet and a yacht. Then I calculated the cost of buying and maintaining those toys and realized I’d have to win the lottery every year to afford such luxury. Time to get real!

The sooner you get a handle on needs versus wants, the better off you and your family will be. Owning cool stuff is fun. Most real people, however, have to choose between the neat toys they’d like and saving enough to retire comfortably.

So until those lottery wins come in, I’ll continue flying commercial with the other mere mortals. If you want to treat yourself, pay a little extra to upgrade your seat.

#2—Don’t misunderstand status. In dictionary terms, status means:

sta·tus

1. rank: the relative position or standing of somebody or something in a society or other group
2. prestige: high rank or standing, especially in a community, work force, or organization
3. condition: a condition that is subject to change

In Miller terms, there are least two different types of status. The first I call “pseudo-status.” In the article mentioned above, I wrote about my friend Tom, the poster child for spendaholics anonymous. Tom spent a good portion of his adult life trying to impress others and move up in the pecking order. Could Tom have really bought his way to the top? No.

The second type of status I call “earned status.” Each major professional sport has a hall of fame. The players enshrined in them stood out among their peers and earned their status in those communities.

Earned status is a laudable aspiration. A mentor of mine once said:

“Real status does not come from telling people how important you are, but rather from others recognizing your achievements above the rest. Accomplish something, and they will know you are good. You won’t have to say a word.”

#3—You don’t have to be a scrooge. Owning nice things can make life more enjoyable. There is nothing wrong with buying cool stuff that makes you happy. Enjoying an expensive glass of wine at dinner does not make you an alcoholic or a spendaholic.

However, buying stuff you don’t need with money you don’t have will eventually affect your family, your retirement, and your health. Tom had closets crammed full of clothes, but he still made regular trips to the big city men’s store where he’d drop $10,000 or more each visit. He would leave the store carrying nothing—everything had to be monogrammed and shipped.

I can’t remember the last time I saw Tom in a non-monogrammed shirt. After he died, one of his children confided that his designer jeans and socks were monogrammed too. No wonder they said he had an addiction.

#4—Short-term gratification is just that: short term. Tom’s life saddens me. He had a great business, employed many people, earned a good income, and was an asset to the community. Had he focused on long-term goals rather than indulging short-term emotional needs, he would have achieved the status he so desperately wanted.

Tom fell prey to his desire to constantly feel important. He seemed to think the only way he could satisfy that hunger was to constantly buy clothes and toys. Unfortunately, that addiction is what kept him from his goal. He died bankrupt, and everyone in town knew it.

#5—Remember the lessons your grandparents taught you. You can’t buy real friends, nor can you maintain a friendship by constantly flaunting your wealth. True friendship has nothing to do with money. It comes from who you are and how you behave.

I have a friend whom I’ve known since high school. He grew up on a farm in a single-parent home. He has built quite a business empire and has more than his share of cool and very expensive toys. Unlike Tom, however, he can actually afford to write a check for them. The friends he is most comfortable with are the ones who knew him when he was poor and are happy for his success.

This friend was too busy on the farm growing up to participate in many high school activities. When the school bell rang, he rushed home to work late into the night.

Tom, on the other hand, had a different childhood. His parents looked after him financially. They even started the family business that Tom eventually took over. He never learned to save. Money magically appeared when he wanted it for many decades—until it didn’t.

Maybe things just came too easy for Tom. He never valued having money, only what it could buy him. I’ll leave that for the professionals to ponder.

Forbes and countless T-shirts in the 1980s said, “He who dies with the most toys wins.” There was another popular T-shirt, though—one I’d be proud to wear—that said, “He who dies with the most toys still dies.”

Toys are not the measure of a man. The true captain of his own ship looks after his crew and their welfare until his dying day. The folks I know who are truly happy have done just that. A man who doesn’t fixate on toys he neither needs nor can afford has a much better chance at finding lasting happiness.

I am a big believer that being “rich” is a state of mind. As you cross the threshold toward retirement, the ability to maintain your lifestyle without worry can help keep you in that mindset. Retirement shouldn’t involve a lot of money worries… and it doesn’t have to.

Our goal at Miller’s Money Forever is to help our subscribers become truly rich and make their golden years the best of their lives. Our portfolio is doing quite well, and we have optimal safety precautions in place. If you have not done so already, I urge you to take advantage of our 90-day risk-free offer. We are reasonably priced ($99/year). If you feel we are not for you, cancel within the first 90 days and receive 100% of your money back, no questions asked. Click here to subscribe today.

Thin Your Waist to Fatten Your Wallet

By Dennis Miller

My doctor told me to lose weight. … I lost 10 lb. … I gained 10 lb. I’ve said those words to my editor Ann all too often over the last two years. Last month when I proudly announced that I’d bought new walking shoes to replace my old Nike Airs and had lost a bit of weight since my annual checkup, she said that was good news, but that I was fighting the wrong battle. Huh?

Ann has been my editor since I joined Casey Research. She and I share an easy rapport, so I had no problem digesting (pun intended) her comments on my dieting misadventures. Monitoring my health might not be Ann’s highest calling. She’s a member of the New York Bar, and we’d already planned to push her out from behind the curtain to write on legal topics near and dear to our readers. After our recent exchange, however, I insisted this letter be her first guest spot.

A Retirement Guru Eats Broccoli… Maybe

By Ann Coxon

Don’t worry. I’m not going to recommend only eating purple foods while standing on your head and singing the “Hokey Pokey.” Maintaining or regaining your health in your golden years is much simpler than that, and it brings an added bonus: more money.

After quietly listening to Dennis speak about his dieting disasters, I finally risked overstepping professional bounds and told him why he wasn’t having any long-term success and what he could do about it. Instead of taking offense like I feared, he thanked me and all but demanded I share my little health rant with you because so many of his friends and peers share the same struggle. If you don’t fall in that category, good for you!

Now, about that money… For Americans age 65 and older, the mean annual expenditure for drugs is $798; for medical services, $935; for medical supplies, $200; and for health insurance, $3,186. That’s a lot of cash, especially when you consider that the mean after-tax income for this age group is $43,969, according to our friends at the Bureau of Labor Statistics (BLS).

Now, here’s the truly astonishing part: This same group spends a mere $452 on fresh fruits and vegetables. Put another way: Seniors are spending $346 more on drugs each year than they are on fresh, green goodness. Talk about a misallocation of resources!

Some of you are likely thinking, “But I need those drugs to control my blood pressure, or arthritis, or type 2 diabetes.” Just name your ailment. Frankly, you’d probably be right—at least, in the here and now. I’m not a doctor, nor do I play one on television. But we all know these lifestyle diseases are largely preventable and sometimes reversible with diet, exercise, and stress reduction.

It’s hard to see the big picture, however, when many or most of your friends and neighbors suffer from similar diseases of civilization. It just seems normal to hand over your hard-earned dollars to Pfizer, Merck, AstraZeneca, etc.

Don’t get me wrong. Pharmaceutical and biotechnology companies do amazing things. We’ve even recommended one in the Miller’s Money Forever portfolio. If I ever need a life-saving drug developed on the back of Lipitor profits, I will quietly thank my lucky stars that Americans stubbornly refused to give up their three cheeseburgers per week habit.

Nevertheless, there is a better place to put that $798: your brokerage account. Of course, you may need to redirect some of it to your green grocer first.

Turning Medical Costs into Profits

Some health costs are unavoidable. You can chalk the $3,186 spent on health insurance up to the cost of living on planet Earth in 2014. But what if you could lessen or even eliminate the other costs? Could that make a real impact on your financial well-being? The short answer is: yes!

For most, medical costs in the decades leading up to retirement are far lower than they’ll be throughout their golden years. From age 25 through 64, the annual mean drug expenditure averages out to $456.75; medical services, $836.75; and medical supplies, $131.75. That’s $1,425.25, year in and year out.

Our chief analyst, Andrey Dashkov whipped up a chart showing the additional funds a hypothetical health nut would have on his 65^th birthday if he saved and invested that $1,425.25 each year from age 25, at a modest 5% return (the green line).

It’s an ambitious goal. Even the most diligent among us get bumps, bruises, and the occasional bout of influenza, in addition to any genetically unavoidable ills specific to our individual blueprints. So Andrey ran the numbers a second time assuming our health nut only saved 50% of those costs over the same time period (the yellow line).

The verdict: saving 100% gave our guy $172,170 to play with during retirement; saving 50% gave him an additional $86,085.

OK, you get it. We all agree that more money and better health are good things. So why did I tell Dennis he was fighting the wrong battle?

Finding Lettuce in Texas

In the United States circa 2014, both the type of foods and how they are eaten make it practically impossible for people to not get fat and stay fat; and we all know that diet, exercise, and weight are directly linked to those diseases of civilization mentioned earlier.

The most common reasons I’ve heard for not eating whole, healthy foods, other than “nachos just taste better,” are: they’re too expensive; or, they’re simply unavailable. To the former, I say: Pay now in food costs or pay later in medical bills and a lowered quality of life. To the latter: High-quality food is difficult to find in many parts of the country, but it is not impossible.

Having spent the bulk of my life in northern California, I didn’t have to look far for first-rate fruits and vegetables until moving to a certain state in the Midwest. (I won’t name names. Let’s just say this place is awfully proud of its cheese.)

So, to make sure I didn’t completely stick my foot in my mouth, I looked for supermarket alternatives in Corpus Christi, Texas, commonly billed as “America’s fattest city.” I was curious to know if Corpus Christi had any farm-share programs similar to the one I use.

For $35 per month, Corpus Christi residents can pick up a full basket of seasonal fruits and vegetables biweekly at the Southside Farmers Market, or so I’d read. I called up the farm’s proprietor, Rey, who said he’d had to discontinue the farm-share program this year because of what amounted to a lack of demand. He’d had to give away too much un-purchased produce to local homeless shelters for the program to remain profitable.

Locals can, however, still buy Rey’s produce and that of 15 other farmers at the Wednesday and Saturday markets. In short, there is lettuce to be found in Corpus Christi, but folks down there aren’t buying much of it.

You Can Opt Out

“Franken-food” manufacturers and the ever-growing diet industry make dollar after dollar from a chronically overweight and sick population. Here at Miller’s Money we are as pro free market as they come, and I support us all having the choice to spend life feeling crummy, to buy diet books, powders, and potions to lose weight, and then to spend retirement paying big bucks to treat preventable ailments. But why not keep that money for yourself? You earned it.

To make matters worse, federal agricultural subsidies have helped make cheap-but-empty calories so cheap that “poor” increasingly means “obese-but-malnourished.”

Where does that leave Americans? Overweight, chronically ill, and struggling.

So, here was my prescription for Dennis: Opt out of the modern American diet. These guidelines aren’t always easy to follow. Truth be told, I spent two solid minutes at the market last night pondering the wisdom of buying a pint of banana chocolate ice cream for dinner in lieu of the salmon I actually purchased.

Some of these mantras are borrowed, and some I’ve learned through trial and error. No broccoli is required, since Dennis hates it.

• Sit down at a table and eat breakfast, lunch, and dinner—nothing more and nothing less. A car is not a table. A couch is not a table. A desk is not a table.Oh! And turn off the television, or your electronic distraction of choice, during every meal. A bit of conversation, or music if you’re dining solo, will slow you down before a casual meal turns into a feast fit for Emperor Caligula.
• Don’t eat seconds. Another meal will come your way, and you will not starve to death waiting for it.
• Never eat commercially processed food. Just don’t do it. What does “processed” mean? Look at the back of your milk carton. Does it say “Vitamin A palmitate and/or Vitamin D”? If so, it’s commercially processed in my book.There is simply no way to eat enough commercially manipulated food to feel satiated without consuming excess calories. Too many people are fighting this losing battle; they may have minor successes along the way, but they will likely be short-lived. So put down the Lean Cuisine and master or re-master the art of simple home cooking.
• Eat vegetables with every meal, even breakfast. Ketchup is not a vegetable.
• Dessert is like alcohol; have a little with friends, but never alone. The implicit social pressure to not eat a half gallon of ice cream is enough to keep most people in check, but it’s pretty easy to curl up with a dozen cookies when no one is looking. No judgment; we’ve all done it.
• Never drink soda, including diet soda. Although artificial sweeteners contain no calories, they trick your endocrine system into thinking you’ve consumed real sugar, triggering an uptick in insulin and ghrelin, a key hunger-regulating hormone. So say “goodbye” to Diet Pepsi and “hello” to club soda and unsweetened iced tea.
• Eat the full-fat version, not the artificially low-fat or non-fat substitute. Less of the real thing is always more satiating than more of the fake stuff. Who wants to live in a world without real butter and bacon? Not I!
• Break a sweat every day, even on Sundays. You don’t have to join a fancy gym. Your local YMCA likely has classes geared toward seniors so you don’t end up in aerial yoga next to a 25-year-old former New York City Ballet dancer. (Laugh away, but aerial yoga is a real thing and quite the rage among twenty-something urbanites of means. At $20 or so per class, think of how much they could be saving for retirement instead.)Plus, if you’re recently retired and missing office camaraderie, a group class is a no-brainer way to get out of the house every morning. Or just take a brisk walk; it costs nothing.

Eliminating processed foods is a difficult adjustment for many people. You might not know what else to eat. If that’s the case you’re not alone; there’s communal amnesia about how to cook whole foods that taste, umm… tasty. It’s a skill, but it’s an easily learned skill.

Oh, and lest I forget, even if you like hotdogs, fast food, and pre-packaged anything now, our palates are malleable. Start eating whole foods and after awhile you’ll want to eat them. You may feel like you’re in the twilight zone for the first couple of weeks; just give it time. Even Dennis could eventually learn to like broccoli.

By all reports Dennis is following my advice, and his weight and blood pressure are dropping. I practically fainted when he told me he’d eaten beet greens with dinner.

I truly admire Dennis’ willingness to abandon an approach to a problem that wasn’t working. If you feel the same about your approach to retirement investing, or if it simply needs fine-tuning, take a gander at our premium publication, Miller’s Money Forever by signing up here.

Covered Calls

By Dennis Miller

The strategy I’m writing about today is one of my favorite, guaranteed moneymakers. These are trades we can all easily make, requiring no capital outlay and guaranteed to make a profit or you don’t make them. What’s the catch? We might occasionally find ourselves lamenting how much more money we might have made.

Experienced investors have likely figured out that I’m talking about a stock option called a “covered call.” Buying options is for speculators, and that’s not what I’m talking about today. I want to show you the one and only option trade that meets my stringent criteria for comfort.

Covered calls:

• Are easily understood;
• Are easy to implement;
• Require no market timing to make your predetermined profit; and
• Require minimal time for investors to manage.

In addition, you can calculate your profit clearly at the time of the trade (if there’s no hefty gain, you pass on it); the risks are financially and emotionally manageable; and the upside potential is excellent with covered calls. Let’s begin with the boilerplate stuff first before we discuss strategy.

There’s an options market that allows people to buy and sell options on stocks. Speculators have made millions of dollars trading options without owning a single share of stock. That’s the wrong place to be with your retirement nest egg. I’m going to show you how an average investor with an online brokerage account can supplement his income in a safe, easy, responsible, and conservative manner.

Let’s start with a basic premise: money is consistently made on the sell side of the transaction. Selling one type of option is the only strategy that will meet our stringent criteria.

Before we proceed, here’s a need-to-know glossary for covered calls:

Stock option. An option is a right that can be bought and sold. There are markets for trading options in an orderly manner. Two transactions may occur between the buyer and seller. The first is the transaction when the right (option) is sold. The second transaction is “optional” and at the discretion of the buyer. If the buyer exercises his right (option), the seller is required to complete an agreed-upon stock transaction. Today we’re focusing on covered call options.

Covered Calls. When you sell a covered call, the buyer purchases the right to buy a certain number of shares of stock which you own, at an agreed upon (strike) price, at any time before the option expires (known as the expiration date). The option buyer is not obligated to buy your stock; he has the right to do so. You’re obligated to sell the stock if the buyer exercises the option. The term for this is your stock gets “called away.” Regardless, you keep the money you were paid when you sold your option.

There are four elements to an option transaction:

1. the price of the option in the market (what you can buy or sell it for);
2. the number of contracts (each contract is 100 shares);
3. the price of the underlying stock (referred to as strike price); and
4. the expiration date.

Option price. This is the price the option is bought or sold for. This changes as the price of the underlying stock moves in the market and the time frame moves closer to the expiration date. Readers will see that there are two prices: “bid” and “asked,” just like stocks. When you sell an option, this completes the first part of the transaction. The money changes hands and is yours to keep, regardless of what happens later. Cha-ching!

Strike price. This part of the transaction is agreed upon when the option is bought/sold. Let’s assume the buyer purchased a call (a right to your stock) at a strike price of $55/share. Should the buyer choose to exercise his option, the buyer pays you $55/share, and you (through your broker) deliver the stock, regardless of the current market price of the stock.

Expiration date. Options generally expire on the third Friday of every month. When looking at the options trading platform on any major stock, you’ll find options available for several months in advance. You’ll notice that the longer the remaining time, the higher the price of the option.

At the time the stock option is bought/sold, all of the elements above are agreed upon. The buyer has until the expiration date to exercise his option. The numbers of shares and selling price have already been determined. If your stock is called away, you’ll see the cash come in to your brokerage account, and the shares will automatically be delivered to the buyer.

Never sell a call option without owning the underlying stock; it’s much too risky for your retirement nest egg.

Option contract. An option contract is for 100 shares of the underlying stock. Options are sold in contracts, and the prices are quoted per share. For example, if you see an option price of $1.15, the contract will cost $115 ($1.15 x 100 shares). If a buyer/seller wants to have an option on 500 shares, he buys five contracts.

There are two types of options: puts and calls. We’re going to discuss the only option strategy that meets our stringent, conservative criteria: selling a covered call.

Why would an investor buy a call option? Buyers of call options are generally speculators who believe that a stock will appreciate above the strike price before the option expires. If they guess right, they can make a lot of money.

The vast majority of call options expire worthless. The rules are simple. Don’t sell an option unless you own the underlying stock. (This is referred to as a “naked call”.) Don’t buy options—period!

A Savvy Strategy

We’ll use a fictional company – ABC Products – for an example. Say we bought the stock in October 2012 for $40; the market price one year later (in November 2013) was $55/share. Why would we want to sell a covered call?

In November, ABC was $55/share. We’ll say its current dividend is $0.55/share. The March call option at a strike price of $57 is selling for $1.10/share—twice as much as the current dividend.

Assume that on December 20, you either called your broker or went online and brought up ABC in your trading platform. You would have seen the current bid and asked prices. Assume it sold for $1.10/share.

Now, one of four things could have happened:

1. The stock didn’t go over the $57 strike price, so the stock was not called away. In approximately 90 days, you’d have received $0.55/share in dividends, plus $1.10 for the option, for a total of $1.65. You just added more than double the dividend to your yield without spending a penny more of your investment capital. What do we do when the option expires? Look for another juicy opportunity for the June options and do it again!
2. Let’s take the worst-case scenario: the market tanked. You had a 20% trailing stop in place. You got stopped out at $44—$11/share lower than the November price. But wait a minute, what about the covered call? The value of the option would also have dropped and sold for mere pennies. If you got stopped out of the stock, you could have bought back the option at the same time. For the sake of illustration, say you bought it back for $0.04. You netted $1.06/share profit. Instead of losing $11/share, your loss became $9.94. If you didn’t buy back your option, you’d have had huge risk exposure should the stock jump back up. It isn’t worth the risk, so you’d spend the few pennies it takes to close out your position.
3. You wanted to exit your position before the expiration date. If the stock rises above the strike price of the option, generally the price of the option will move right along with it. If the stock moved to $59/share, you would “buy to close.” The market price should be close to $2/share; however, that would be offset by the fact that you sold your stock for $59.00 share.If the stock remained stagnant or started to drop and you wanted to exit your position, the market price of the option would decline more rapidly. You’d likely buy back your option at a profit.
4. The most difficult situation emotionally is when the stock rises well above the strike price and gets called. Let’s assume that in March, ABC has appreciated to $59/share. Your option is called at $57 (the strike price). You make a profit of $2/share from the time you sold the option, plus the $1.10/share for the option and the $0.55 dividend, for a total of $3.65/share. For the 90-day time frame, you earned 6.3% on your money ($55/share), or 24.9% on an annualized basis, net of brokerage commission. Yet we’ll lament the fact that you could have made more.

In each case, you haven’t invested any more capital. You make 100% profit on the call in two cases. The worst case is you generally break even on the options should you want to exit early. In the vast majority of cases, selling covered calls is straight profit on top of your dividends.

Here are some guidelines:

• Sell covered calls for stocks you own and would gladly keep.
• Sell covered calls to expire after the dividends are paid.
• Sell covered calls at a strike price above the current market price of the stock, referred to as “out of the money.”
• Don’t lament the times your stock gets called. You took a nice profit, and there are plenty more opportunities out there.
• Use stocks that are heavily traded, as they are more liquid.
• To calculate gains for any stock and option price combination, please use our option calculator, which you can download here.

Selling selected covered calls is a great way to turbocharge yield without any additional investment. At the same time, it will mitigate a bit of risk. If you have a 20% trailing stop in place and the stock gets stopped out, your 20% will be offset by the profit you made on the option sale. While most investors are starved for yield, you can find yield in the safest and easiest manner possible.

Each month, we look at the Miller’s Money Forever portfolio and recommend and track covered calls on some of our positions. If you’re not a current subscriber, I highly recommend taking advantage of our 90-day, no-risk offer. Sign up at the current promotional rate of $99/year, and download my book and all of our special reports—really take your time and look us over. If within the first 90 days you feel we’re not for you, feel free to cancel and receive a 100% refund, no questions asked. You can still keep the material as our thank-you for taking a look. Click here to subscribe risk-free today.

The Three Stooges Debunk myRA

By Dennis Miller

A little skit ran through my head the other day…

The house lights dimmed and the bright American flag glistened in the background. The crowd hushed as a tall man in a strange costume strode confidently onto the stage.

Curly turned to Larry and Moe and exclaimed, “Oh my, that’s our favorite—Uncle Sam, our boyhood hero.” Moe put his finger to his lips as if to say “Shhh!”

Uncle Sam rapped the microphone with his fingernail and the sound echoed throughout the hall. He then bellowed out, “Hello, my fellow Americans!” and the crowd cheered wildly.

He continued, “Today I want to announce the deal of a lifetime. We all know that IRAs and 401(k)s are tools greedy rich people use to save for retirement. I’m here to announce a new retirement program for everyday, ordinary people. Everyone should have the right to retire safely and with dignity, and that is what we are going to do for you.”

Uncle Sam paused until the applause died down.

“Today we have introduced a new retirement program called myRA. It’s pretty simple. Your employer can withdraw as little as $5 from your paycheck, and it will be invested in a new government bond that will earn the same variable-rate interest as those available through the government Thrift Saving Plan Government Securities Investment Fund (G fund). If you change jobs, it is totally portable. You can take it with you.

“While the final details are still being worked out, you can invest your money into safe, interest-bearing bonds and let it grow tax free. And the best part is: when you take your distribution out, you don’t have to pay taxes on it either.

“So, there you have it! You can have money taken out of your paycheck in small amounts. It will be invested in variable-interest government bonds paying a good return, and it will be there for your retirement along with Social Security, TAX FREE! Don’t ever say Uncle Sam isn’t looking out for you.

“I know everyone is anxious to get started, but I will answer some questions now. Please raise your hand.”

Curly raised his hand and Uncle Sam pointed in his direction. “You, baldy, what’s your question?”

Curly cleared his throat and asked, “It looks to me like the government is acting like an insurance company. We give you our money and you look after it for our retirement. Is that correct?”

“Exactly right,” Uncle Sam responded. “Who else can keep money as safe as the US government?”

Curly, Larry, and Moe looked at each other quizzically.

Moe raised his hand. Uncle Sam spotted him and said, “You, mop head, what is your question?”

Moe said, “The national debt clock shows the government already has over $128 trillion in unfunded promises to others. How will our money be invested? Will it be used to make good on promises already made to other people?”

Uncle Sam paused for a moment and said, “Those details will be worked out. While that may happen, younger people will take part in this program too, so they will help pay for your retirement when the time comes.”

Moe could barely contain himself. “Isn’t that a Ponzi scheme? I thought they were illegal?”

Uncle Sam paused and said, “Ponzi schemes are illegal, unless they are run by the government. What’s your problem? I mean, come on! Doesn’t everyone trust the government?”

51% of the audience cheered wildly while the other 49% remained silent.

Larry, not wanting to be outdone by his friends, raised his hand.

“You, half-bald mop-head, what’s on your mind?”

Larry replied, “I have a two-part question. Why not use a Roth IRA instead? Aren’t they available to everyone? Also, can’t all self-directed retirement plans invest in government bonds now if they want to?”

Uncle Sam’s face grew red as he responded, “Obviously, you don’t get it. Nothing is safer than a retirement program totally invested with the government. You earn a decent yield without any worry.”

Larry shouted, “Wait a minute! The government has already made over $128 trillion in promises it cannot keep. Now you want us to invest our money with you, at an interest rate that you control? What’s the catch?”

Uncle Sam’s face grew bright red as he exclaimed, “Everyone knows the government can do a better job of looking after your money than you can. You guys are just a bunch of stooges. This program is so good, but you dummies are too stupid to see that!“

Curly turned to Larry and Moe and said, “When Uncle Sam calls it an myRA he is right. ‘My’ means it is his. We may be dumb, but we are not that stupid. This is a terrible idea. They are just trying to grab our money so they can keep buying votes in the next election. I am not touching it.”

“I heard that!” Uncle Sam screamed. “You are the kind of people who have torn America apart—greedy, selfish, and without compassion for the little guy. Audience, you heard them. Don’t you agree?”

51% jumped to their feet screaming wildly while the other 49% sat silent. Once the noise died down, Larry uttered through the microphone, “It sounds to me like another money grab. We might be better off just leaving the country.”

Uncle Sam realized this was an argument he had to win. “Look, you un-American radicals! We don’t want your kind in this country. Those values have no place in a modern society. Go ahead! Get the hell out of here! Just leave your money behind. Audience, don’t you agree it is time to tell those greedy buggers to hit the road? If they don’t want to share, let them go elsewhere. I am sick of their selfish ways.”

Again, 51% jumped to their feet screaming wildly, glaring at Larry, Curly, and Moe. The screaming would not stop. 49% quietly headed to the exits with the three stooges leading the way. Moe, speaking in almost a whisper, commented, “It seems the real stooges are the ones who fall for the scheme.” The 49% nodded their heads in silent agreement.

Personally, I am a registered independent and have been for over 50 years. Both political parties have pushed the government to make $128 trillion worth of promises—with our money—that it cannot afford to pay. What a terrible burden to place on future generations!

Our national debt clock shows government liabilities of $1.1 million per taxpayer. They spend our money to buy votes to stay in power. The system is beyond repair.

Humor is a good outlet to help work through issues that might otherwise drive my blood pressure—and yours—to an all-time high. Here’s the scary part we cannot laugh away: myRAs are real.

My advice: Just say no to myRA and open up a Roth IRA instead. You receive the same tax benefits but more options to invest your money ahead of inflation so you can actually enjoy retirement. Snake oil is snake oil, no matter how you try to package it.

As a person who has spent the last several years trying to help people understand investing so they may retire comfortably, I become more frustrated with the government every day. No one needs a myRA when they can invest in a Roth IRA with the same benefits but greater flexibility.

There are many ways for folks to save for retirement without turning to the government. After all, most realize it isn’t prudent to seek financial help from the most broke person (or entity, in this case) around. My weekly column, Miller’s Money Weekly, offers insights into alternative ways to protect and build your nest egg. Best of all, it’s free. Sign up today to receive articles like the one you just read and other actionable advice.

Reverse Mortgages 101

By Dennis Miller

My grandfather liked to use clever sayings to make a point. One of his favorites was, “the same thing, only different!” As we pulled together this article, I immediately thought of how his funny little saying applied.

The Same Thing…

When you buy an annuity, you give a private company a sum of money in exchange for its promise to pay you a fixed amount every month until you die. As an investment, it’s not likely to pay off – unless you happen to outlive your expected mortality – but it may still be a good idea. And if you’re one of the lucky folks who outlive their actuarial life expectancy, an annuity can turn out to be a terrific investment.

A reverse mortgage is quite similar. But instead of writing a big check to an insurance company, you give the bank a mortgage on your home based on your current equity. In return, the mortgage company agrees to pay you a certain amount every month for some period of time: until you die, move out, or celebrate your 100th birthday (more on that later). For a reverse mortgage to be a good investment, you have to outlive your expected mortality and stay in your home.

It may not turn out be a good investment, but under certain circumstances it could still be a good idea. We’ll examine what a reverse mortgage is and how to determine if one is right for you. We also consider many of the risks involved, suggest steps to improve your position, and pass along tips on how to get the best possible deal available.

Reverse mortgages have many individualized, variable components. For our purposes, we are sticking to the basic concepts. If you think you are a good candidate, make sure to consult a licensed, professional HUD counselor to help tailor the product to your needs.

…Only Different

I’ve looked into reverse mortgages several times, and they always made me uncomfortable. The value of owning your home free and clear is one of my core beliefs.

Personally, paying off my mortgage was a tremendous emotional relief. Now it’s time to challenge that idea.

What if you could mortgage your home and no matter how high the balance on that mortgage got, no one could throw you out of your home? As long as you kept up your home and paid your taxes and insurance, you could live there as long as you wanted. What if the property value became less than the balance of the mortgage, yet if you moved out and sold the home, you would not have to make up the difference? Or, when the house sells, the reverse mortgage is paid off, and you get the balance of any remaining equity?

In essence, these are the ideas behind a reverse mortgage. But just as insurance companies tilt the odds in their favor by setting the monthly payouts, the same is true for banks that hold reverse mortgages.

However, the “only different” part is this. Some reverse mortgages may be capped at a certain age (generally 100).  The rules are constantly changing so be sure you check if you apply for one.  With the advances in modern medicine, this could become a factor.. Unlike an annuity that continues to pay every month no matter how long you live, the payments from a reverse mortgage may have a stopping point. You still own your home after that and you can still live there until you die or it is no longer your principal residence, but you no longer receive monthly payments.

The banks do very well financially on most reverse mortgages. Most folks send checks to the bank for 25 years or more before they own their home outright. With a reverse mortgage, the bank will own all – or a major part – of the equity in your home, and in much less time. You still have title to the property, but your equity could be depleted. The good news is they must continue to send you monthly checks which is the risk they take.

Reverse mortgages are not right for everyone. While you may be feeling the pinch, there may be better remedies for your situation. If you are a good candidate, we can help you understand some of the common pitfalls and mistakes so that the monthly check can help you have “money forever.”

Back to Basics

A reverse mortgage is a special type of home-equity loan sold to homeowners 62 and older. It gives a homeowner access to some of the equity in their home in the form of monthly payments, with the protection of knowing that they can stay in their home as long as they pay their taxes and maintain the property.

When you die or move out, the mortgage must be repaid. The Federal Trade Commission report Reverse Mortgages states:

“The loan must be repaid when the borrower dies, sells the home, or no longer lives in the home as a principal residence. … Most reverse mortgages have a ‘nonrecourse’ clause, which prevents you or your estate from owing more than the value of your home when the loan becomes due and the home is sold.”

Federally insured reverse mortgages, known as Home Equity Conversion Mortgages (HECMs), are backed by the US Department of Housing and Urban Development (HUD). The National Council on Aging reports that HECMs represent 95% of reverse mortgages originated in the US. Since HECMs make up the vast majority of reverse mortgages, they are the focus of our report.

HUD Counseling and Other First Steps

Before a homeowner begins the application process, they must go to a HUD-approved counseling agency to learn about the cost and features of these loans. As you read on, you will probably agree that the cost of HUD counseling is money well spent. Most agencies charge around $125. The fees can be added to the loan proceeds, and you cannot be turned away if you cannot afford the fee.

The lender’s upfront fees can be quite expensive. Nevertheless, there are two types of HECMs: the HECM Standard Loan; and the HECM Saver Loan, which has a lower closing fee. For example, if a homeowner has a $250,000 home with no existing mortgage, the standard fee at closing (which is added to the mortgage) is $14,721. The HECM Saver Loan fee is $9,746.

The amount of monthly payments also varies. A 65-year-old with a Standard Loan would receive $754/month, while that same person with a Saver Loan would receive $730/month. In addition, there is a capped monthly service fee of $35 or $420 per year added to the loan to cover servicing costs.

The monthly payment also varies by the age of the homeowner when he takes out the loan. If you own a $250,000 home and you take out a HECM standard loan at age 65, your payouts will be $754/month. If you wait until age 75, they’ll be $950/month and $1,380/month if you hold off until age 85. The offered amounts fluctuate weekly with interest rates, just as mortgage interest rates do.

Please note that we recommend that both spouses be on a reverse mortgage. If there’s an age difference, the monthly amount is based on the age of the younger spouse.

So… should I get one?

Just because you qualify for a reverse mortgage doesn’t mean you should get one. Before you consider a reverse mortgage, you should check out our unbiased report that will give you all of the details for evaluating whether this is a good step for you. You’ll learn:

• How a reverse mortgage is different from what you probably think it is, and why the number “100” is the most important number to consider… page 5.
• The two types of reverse mortgages that comprise 95% of the market; pick the wrong one and you could have to shell out nearly 50% more in fees without even knowing it… page 6.
• The three questions you must answer before you take on a reverse mortgage; ignore them and you could be trapped in your home forever… page 9.
• The six-part checklist you need to ask your spouse or housemate to see if both of you can actually stay in your home… page 10.
• The risks that come with a reverse mortgage: these are the ones the companies will never tell you about, but they’re real… page 13.
• Who’s getting a reverse mortgage these days? The answer may surprise you, but it’s a reflection of the times… page 19.
• Other realistic options to a reverse mortgage; miss these and you could make mistake you’ll never recover from… page 23.

Don’t even consider listening to a reverse mortgage pitch until you’ve had a chance to read through The Reverse Mortgage Guide.

And the Band Plays On

By Dennis Miller

Quantitative Easing (QE) is no longer a surprise, but the fact that it’s continued for so long is. Like many Miller’s Money readers, I believe the government cannot continue to pay its bills by having the Federal Reserve buy debt with newly created money forever. This has gone on much longer than I’d have ever dreamed possible.

Unemployment numbers dropped in December and the Federal Reserve tapered their money creation from $85 billion to $75 billion per month. Why did the unemployment rate drop? Primarily because people whose benefits have expired are no longer considered unemployed. The government classifies them as merely discouraged, but the fact remains that they don’t have jobs.

So, what is the problem? Let’s start with the magnitude of money creation. Tim Price sums it up well in an article on Sovereign Man:

“Last year, the US Federal Reserve enjoyed its 100th anniversary, having been founded in a blaze of secrecy in 1913. By 2007, the Fed’s balance sheet had grown to $800 billion. Under its current QE program (which may or may not get tapered according to the Fed’s current intentions), the Fed is printing $1 trillion a year.

To put it another way, the Fed is printing roughly 100 years’ worth of money every 12 months. (Now that’s inflation.)”

As Doug Casey likes to remind us: Just because something is inevitable, does not mean it is imminent. Well, sooner or later imminent and inevitable are going to meet. Interest rates are depressed because the Federal Reserve is holding our debt. Eventually those creditors outside the Federal Reserve will demand much higher interest rates.

Currently, 30-year Treasuries are paying 3.59%. If interest rates rose by 2%—still below what was considered “normal” a decade ago—the interest cost to our government would jump by 30% or more. It’s hard to imagine the huge budget cuts or tax increases it would take to pay for that.

In the meantime, investors are caught between the proverbial rock and hard place. We cannot invest in long- or medium-term, “safe,” fixed-income investments because they are no longer safe. They could easily destroy your buying power through inflation.

At the same time, the stock market is not trading on fundamentals. It is on thin ice. Just how thin is that ice? Take a look at what happened when the Federal Reserve stopped propping up the economy with money printing.

Each time they stopped with their stimulus the market dropped. In the summer of 2013, Bernanke made his famous “taper” remark and the market reacted negatively, immediately. The Fed has had to introduce more money into the system to stop the slide.

Investors who need yield know they have virtually no place else to go but the stock market. Most realize it is a huge bubble; they only hope to get out ahead of everyone else when the time comes. And we can’t hold cash; inflation would clobber us. So, we’ve been forced into the market to protect and grow our nest eggs.

It reminds me of playing musical chairs as a kid. The piano player would slow down the tempo. We would all grab the back of a chair and get ready to sit. No one wanted to be the one left standing.

Today the band is playing the “Limbo Rock.” Investors are in limbo, knowing the music will stop eventually. We’re all going to have to grab a chair quickly—and the stakes are much higher now.

The chart below on margin debt comes courtesy of my friend and colleague at Casey Research, Bud Conrad.

Investors now have a dangerous amount of money invested on margin—meaning they borrowed money from their brokers to buy even more stock. There are strict margin requirements on how much one can borrow as a percentage of their holdings. If the stock price drops, the investor receives a margin call from his broker. That has to take place quickly under SEC requirements. The broker can also sell the holding at market to bring the client’s account back into compliance.

Record margin debt, coupled with the thought of traders using computers to read the trend and automatically place orders in fractions of a second, paints an uneasy picture. The unemotional computers will not only sell their holdings, they may well initiate short sales to drive the market down even further.

As the lyrics from the “Limbo Rock” ask, “How low can you go?” When the market limbos down, it will likely be faster and further than we’ve imagined.

Why is 2014 different? I’ve been taking stock of 2013 as I prepare our tax filings. Our portfolio did very well last year, thanks in great measure to the analysts at Casey Research. With our Bulletproof Income strategy in place, I am very comfortable with our plans going forward.

At the same time, I am as jittery as a 9-year-old walking slowly around a circle of chairs, knowing that sooner or later the music will stop. The music has played for years now and we are in the game, whether we like it or not. Pundits have gone from saying “this is the year” to more tempered remarks like “this can’t go on forever.” They place their bets on inevitable, but hedge them on imminent.

What can we do? One of the mantras behind our Bulletproof Income strategy is: “Avoid catastrophic losses.” Doug Casey has warned us that in a drastic correction most everyone gets hurt, so our goal is to minimize that damage and its impact on our retirement plans.

Here are a few things you can do to protect yourself.

• Diversify. Not all sectors rise and fall at the same speed. Optimal diversification requires more than just various stock picks across various sectors. Limit your overall stock market exposure according to your age. You don’t have to be all in the market. There are still other ways to earn good, safe returns. International diversification will give you an added margin of safety, too, not only from a market downturn but also from inflation.
• Apply strict position limits. No more than 5% of your overall portfolio should be in any single investment. When I look at the record margin debt, I wonder how so many investors can go hog wild on a single investment. Planning for retirement demands a more measured approach.
• Set trailing stop losses. If you set trailing stop losses on your positions at no more than 20%, the most you could lose on any single trade is 1% of your overall portfolio. The beauty of trailing stops is the maximum loss seldom happens. As the stock rises the trailing stop rises with it, which will lock in some additional profits.
• Monitor regularly. As part of my regular annual review, I go over each one of my stop-loss positions. I use an online trading platform to keep track of them. Depending on the stock, you may want to place a stop-loss sell order or use an alert service that will notify you if the stock drops below your set point. Other investors prefer to use a third party for notification.So, why do I check my stop losses? My particular trading platform accepts the orders “GTC,” meaning “good ’til cancelled.” But GTC really means “Good for 60 days and then you have to re-enter the notification.” Just read the small print.

  Also, sometimes stop losses need adjusting. As a stock gets closer to the projected target price, you may want to reduce the trailing stop loss to 15%, or maybe even 10%, to lock in more profits.

We all want to enjoy our retirement years and have some fun. I sleep well knowing we have several good circuit breakers in place. We may get stopped out of several positions and stuck temporarily holding more cash than we’d like. But that means we’ve avoided catastrophic loss and have cash to take advantage of the real bargains that are bound to appear.

And so the band plays on as baby boomers and retirees continue to limbo.

From the very first issue of Money Forever our goal—my mission­­—has been to help those who truly want to take control of their retirement finances. I want our subscribers to have more wealth, a better understanding of how to create a Bulletproof portfolio, and confidence their money will last throughout retirement.

With that in mind, I’d like to invite you to give Money Forever a try. The current the subscription rate is affordable – less than that of your daily senior vitamin supplements. The best part is you can take advantage of our 90-day, no-risk offer. You can cancel for any reason or even no reason at all, no questions asked, within the first 90 days and receive a full, immediate refund. As you might expect, our cancellation rates are very low, and we aim to keep it that way. Click here to find out more.

Bernanke’s Legacy

By Dennis Miller

“Mr. Bernanke, on the way out, don’t let the door hit ya, where the good Lord split ya!” That’s what I’ve imagined my former coworker Charley—a brilliant Alabamian who was proud to be called a redneck—might have said as the former Fed chairman stepped down.

In case you missed it, here’s Bernanke’s highlight reel:

• The Federal Reserve jumped in and bailed out “too big to fail” banks that made bad business decisions.
• The Fed continued to buy Treasury bonds in order to keep interest rates down.
• The Fed openly acknowledged that their policies force seniors to put their life savings at risk.
• Around 25% more baby boomers and Generation Xers will not have enough money because of Fed policies.
• The Fed is creating a stock market bubble that will eventually burst.
• Bankers are making record profits and paid out record bonuses for 2013.
• Bernanke left behind a 100-year money supply that is continuing to double annually.

During his tenure, Bernanke essentially acted as the chairman of a corporation owned by banks and bankers. I’ve touched on the difference between the Fed’s published goals and how it actually behaves before. The party line: the Fed is a government agency acting in our best interest. Mr. Bernanke is just one of many chairmen who have continued to foster that illusion.

In Code Red, authors John Mauldin and Jonathan Tepper pull the curtain on Zero Interest Rate Policy (ZIRP) to reveal a merciless wizard. Basically, the Federal Reserve has deliberately driven interest rates so low that safe government bonds and government-backed CDs offer interest rates that do not keep up with inflation—which translates into true negative yield for investors. Historically, these fixed-income investments made up the majority of retirees’ investment portfolios.

In the words of the authors:

“When real rates are negative, cash is trash. Negative real rates act like a tax on savings. Inflation eats away at your money, and is, in effect, a tax by the (unelected!) central bankers on your hard-earned money. Leaving money in the bank when real rates are negative guarantees that you will lose purchasing power. Negative real rates force savers and investors to seek out riskier and riskier investments merely to tread water. It almost guarantees people don’t save and stop spending.

In fact, Bernanke openly acknowledges that his low-interest-rate policy is designed to get savers and investors to take more chances with riskier investments. The fact that this is precisely the wrong thing for retirees and savers seems to be lost in their pursuit of market and economic gains.”

On the other hand, if you are a banker you will love his legacy. Sheraz Mian broke down the Q2 2013 earnings reports of the S&P 500 companies in Zacks’ Earning Trends:

“Yes, the total earnings tally reached a new quarterly record in Q2 and the rest of the aggregate metrics like growth rates and beat ratios look respectable enough. But all of that was solely due to one sector only: Finance. … Finance results have been very strong, with total earnings for the companies that have reported results up to an impressive +30% on +8.5% higher revenues.”

Too big to fail banks were certainly succeeding on Bernanke’s watch. Mian continued:

“Earnings growth was particularly strong at the large national and regional banks, with total earnings at the Major Banks industry, which includes 15 banks like J.P. Morgan and Bank of America.”

While banks were making record profits, seniors and savers had been left to fend for themselves. What did Bernanke have to say about this? Well, in January 2011, he said:

“Policies have contributed to a stronger stock market just as they did in March 2009, when we did the last iteration of this. The S&P 500 is up 20%-plus and the Russell 2000, which is about small cap stocks, is up 30%-plus.”

He continued along that same vein in 2012:

“Large-Scale Asset Purchases (LSAP) also appear to have boosted stock prices, presumably both by lowering discount rates and by improving the economic outlook; it is probably not a coincidence that the sustained recovery in US equity prices began in March 2009, shortly after the FOMC’s decision to greatly expand securities purchases. This effect is potentially important because stock values affect both consumption and investment decisions.”

I guess that means Mr. Bernanke, through the asset purchases of the Federal Reserve, is now responsible for propping up the stock market. So now both the big banks and Wall Street are their primary concern?

Perhaps he thought he was doing us a favor by forcing us to risk our money in the market. That’s the kind of favor we sure don’t need.

Good for Bankers, Bad for Anyone Who Wants to Retire

In the summer of 2013, the Employee Benefit Research Institute published a survey about low-interest-rate policies and their impact on both baby boomers and Generation Xers who are following right behind. The bottom line:

“Overall, 25–27 percent of baby boomers and Gen Xers who would have had adequate retirement income under return assumptions based on historical averages (emphasis mine) are simulated to end up running short of money in retirement if today’s historically low-interest rates are assumed to be a permanent condition, assuming retirement income/wealth covers 100 percent of simulated retirement expense.”

Seniors and savers have yet to experience the long-term impact of Bernanke’s policies. Tim Price summed it up this way in an article from Sovereign Man:

“Why do we continue to keep the faith with gold (and silver)? We can encapsulate the argument in one statistic.

Last year, the US Federal Reserve enjoyed its 100th anniversary, having been founded in a blaze of secrecy in 1913. By 2007, the Fed’s balance sheet had grown to $800 billion.

Under its current QE programme (which may or may not get tapered according to the Fed’s current intentions), the Fed is printing $1 trillion a year.

To put it another way, the Fed is printing roughly 100 years’ worth of money every 12 months. (Now that’s inflation.)”

While Bernanke may have gotten out while the getting was still good, the effects of his policies on seniors and savers may be felt for years to come. Inflation is a huge—potentially catastrophic—tax on our savings.

Mr. Bernanke protected the banking system profits at the expense of several generations of hard-working people. If I am ever at an event where he is speaking and he sees me raise my hand, he’d be well advised to call on someone else…

But, it’s not all doom-and-gloom. There are ways to invest safely in order to produce returns well above inflation – and receive solid dividends – without exposing your nest egg to undue risk.

We, like you, strive for bulletproof income and we have found several opportunities out there to grow your nest egg while protecting it. And you can get access to these investments today, risk-free, by trying Miller’s Money Forever. With our 90-day trial you get access to the complete portfolio, our special reports dedicated to issues facing investors today, and all of our archives. In them you’ll find several interviews like this one with experts from all sectors.

So, try it today. You risk nothing and you will find stocks poised to make you the returns you want, with the protection you need.

Master Limited Partnerships Generate Safe Income for Seniors and Savers

By Dennis Miller

It’s time to answer the “who, what, when, where, and why” of investing in master limited partnerships (MLPs)…

Andrey Dashkov, senior research analyst at Miller’s Money Forever, is the rare person who, when you asked for a hammer comes back with a hammer, nails, staples, and glue. In short, he often comes up with better solutions to tricky problems than I ever thought possible.

Since Andrey and I are on a nonstop mission to unearth the best opportunities for generating safe income, we have looked to MLPs more than once. Many Business Development Companies (BDCs) and Real Estate Investment Trusts (REITs) also fit the bill. Today, however, we are focusing exclusively on how MLPs can produce a healthy and steady income without exposing your nest egg to unwelcome risks.

The Nuts and Bolts of MLPs

By Andrey Dashkov

An MLP is an entity structured as a limited partnership instead of the traditional C-corporation. This allows the company to avoid corporate-level taxes. The limited partners pay most of the taxes, which means that MLPs are essentially pass-through entities.

In the United States, the net effective rate of corporate income tax is 40%. That means a corporation calculates its profit, pays the appropriate income tax to the government, and then pays dividends from what remains. With an MLP all the profits are passed through to the unit holders.

While a traditional corporation can choose to pay a dividend, an MLP does not have that option. In order to maintain their status, MLPs are required to generate at least 90% of their income from qualifying sources and distribute the major portion of that income. In most cases these sources include activities related to the production, processing, and distribution of energy commodities, including gas, oil, and coal.

The government gives a special treatment to these activities to encourage investment into the United States’ energy infrastructure.

Limited partners (LPs) own the company together with a general partner (GP). The GP takes care of the day-to-day operations, typically holds a 2% stake, and can usually receive incentive distribution rights (IDRs). LPs, called unit holders, (which we can become by buying shares of publicly traded MLPs) receive dividend-like cash distributions. LPs, unlike traditional shareholders, do not have voting rights.

There are many advantages to MLPs, including:

• Attractive yields;
• Inflation protection;
• Portfolio diversification;
• Tax advantages; and
• Resilient business model.

Attractive Yields

MLPs pay various yields that average 5-10%. Data for the Alerian Index, which tracks the top 50 MLPs, show that in Q2 2013 MLP yields varied from 3-12%, with an average of 6.5%.Besides the actual yield, MLP investors can count on distribution growth. Dividends per share of Alerian Index constituents grew at a compounded rate of 4.1% over the past five years.

Inflation Protection

Several factors hedge against inflation:

• Inflation-adjusted contracts renewed periodically;
• Distribution growth has historically outpaced the growth in CPI; and
• MLP unit (share) prices are weakly correlated with movements in inflation and interest rates.

Portfolio Diversification

MLPs have a low correlation to other asset classes, including equity, debt, and commodities. However, for a short time they may correlate with any asset class or the market in general.

MLPs are less volatile than the broad market. Currently at 0.5, the average beta of Alerian Index, is quite conservative. This suggests that if the broad market goes down by 10%, we should expect the Alerian Index to drop by 5%. An individual company’s volatility may stray from the average, but in general MLPs should be much less volatile than the market as a whole.

Generally, the vast majority of MLPs operate in the energy sector, but usually do not own the underlying commodities; this is part of the reason for the decreased volatility. Their income generally consists of transportation fees. However, some MLPs can be exposed to commodity risk (coal, propane, and oil exploration and production MLPs, among others). Economy-wide consequences of a severe recession may impact the demand for energy commodities and, in turn, the profitability of transportation companies.

Tax Advantages

An MLP investor typically receives a tax shield of 80-90% of one’s annual cash distributions, which is a very nice feature. This defers tax payments until the unit (your share) is sold.

The tax payment schedule for an MLP is illustrated below. Assume you bought one unit of an MLP for $20 and sold it after five years for $22, having received $2 annually in years 1-5. Assuming your ordinary income tax is 35%, and the long-term (LT) capital gains are taxed at 15%, you can see the breakdown.

 

Resilient Business Model

 

During periods of economic uncertainty, MLPs remain a solid source of income. In 2008-2009, 78% of all energy MLPs either maintained or increased their distributions. In comparison, 85% of real estate investment trusts (REITs) either cut or suspended dividend payments.

Now, a note of caution is in order. Despite the excellent income track record, MLP share prices stumbled as they became more correlated to the general market. However, the investors who held them through the difficult times saw the share price rise again. MLPs returned to January 2008 levels in early 2010; the S&P 500 did not do the same until 2013.

The same plunge could happen again if a severe economic crisis hits. As we said, MLPs may move with a falling market. The fact that more investors are aware of MLPs now than a decade or two ago adds to this risk. As investors have searched for yield, MLPs have become more mainstream; however, they are by no means your average S&P 500 stock.

Also, there are two immediately positive outcomes to the higher investor awareness of MLPs: higher liquidity and access to more capital. In the Money Forever portfolio we look for the best and safest available and then protect our downside with protective stop losses.

Principal Risk Areas

With any investment offering a reward, there is a corresponding risk. Here are the key risks of MLPs.

Risk #1: Economic downturns. If the US economy is hit by a severe economic crisis that drives the demand for energy products down, MLPs will take a blow. Like a trucking business that transports products for which the demand is going down, if less product is shipped through a pipeline owned by an MLP, their revenue may decrease.

This, however, is where some investors may get confused. If a pipeline MLP has a contract with an energy company, the price of the transported product may increase or decrease, but at the same time, the MLP may have a fixed-fee arrangement with the energy company. So, if the volume flowing through the pipeline remains steady, its revenue should not fluctuate.

Risk #2: Access to capital and interest rates. As a general rule, MLPs return 100% of their distributable cash flow (DCF), less a reserve determined by the general partner, to the unit holders. Unlike real estate investment trusts that must give away a certain share of their cash flow every quarter, MLP distributions are governed by individual partnership agreements, so the terms vary.

However, the majority of cash an MLP earns will be distributed, so it’s only natural that they turn to issuing debt or equity to finance growth projects. When their interest costs rise MLPs that need capital right away will be at a disadvantage. We prefer companies with enough internally generated capital to finance growth, and no major ongoing projects that require billion-dollar loans and thereby run the risk of being underfunded or funded at an unfavorable interest rate. We also prefer companies with fixed-rate debt to floating rate.

Risk #3: Management and execution. Management should have a track record of successful investment in new assets and cash generation to finance distributions.

We also look for companies that have 5- to 10-year capital plans as part of the write-up, and a history of following those plans. They tend to fare better when it comes to keeping capital costs under control.

Risk #4: Sustainability of cash distributions. The above three risks boil down to whether or not an MLP will be able to churn out cash for its unit holders. The distributions should be sustainable, and should grow year after year. The primary reason for buying an MLP is income. We need to make sure the cash keeps coming in.

A company’s track record of cash payments is a good, but not perfect, indicator of how it will perform in the future. Variable-rate distributions tend to, well, vary more significantly than those of traditional MLPs. Distributions in the midstream sector tend to be more predictable; natural gas pipelines and storage generate the most stable cash flows while refining/upstream MLPs do so to a lesser extent. We carefully consider these factors when evaluating our investment options.

The “Taper” Factor

When Ben Bernanke uttered the word “taper” on June 19, the markets jittered. Even the traditionally defensive sectors such as utilities took a hit.

MLPs were not immune to the potential implications of the Fed easing up on its bond-purchase program which many believe is helping the US economy. The market panicked, and MLPs dropped in price. Readers will note the index dropped in the middle of 2013. The drop was less steep than those in either the broad market or the utilities sector and MLPs rebounded—in less than a week, while it took approximately three weeks for both the S&P 500 and XLU to get back to their June 18 levels.

When evaluating a potential candidate, a prudent investor will see how they have performed during times of market volatility. Sometimes trading a bit of yield for much less volatility is a smart move.

The IRA Caveat

We do not recommend putting MLPs in an IRA account. By placing an MLP in a tax-deferred account, you may lose part of the tax advantage the MLP structure provides. In an IRA account, unrelated business taxable income (UBTI) of over $1,000 is subject to federal income tax. If you earn more than $1,000 annually from an MLP’s cash distributions and other sources of UBTI, the excess will be taxable. This becomes more likely over time, since most MLPs increase their cash distributions.

A Peek Behind the Curtain

In summary, an MLP gives us a couple of advantages from a tax perspective. There is more money to pay out in dividends. Unlike a traditional corporate dividend, which is paid after a corporation pays income taxes, MLPs do not pay corporate income taxes. An MLP’s income is taxed only once, when the dividends are received.

Initially, when you buy an MLP, only 10 to 20 percent of the MLP distribution is considered taxable income. The rest of the distribution is considered return of capital and isn’t subject to tax when you receive the dividend. Basically you put off paying some taxes for the short term. When you eventually sell your MLP, the tax is adjusted so the net amount of taxes is the same. The formula is technical, but the information you receive from your broker can be given to a competent CPA and you should be fine.

You can see why MLPs have become so popular in a yield-starved environment. While they have attracted a lot of investors, there are still some great opportunities for those willing to do their homework.

Dennis and I added our favorite MLP to the Money Forever portfolio in October, and we are chomping at the bit to share it with you… But, because of the special relationship we share with our paid subscribers, you’ll need to sign up to for a premium subscription at no-risk to your pocketbook to find out what it is. Subscribe to our regular monthly newsletter and take a peek at the MLP we recommended, along with our entire portfolio. If, after 90 days, you decide it’s not right for you, we’ll return 100% of your money without a fuss. Click here to get started.

The Lay of the Land

By Dennis Miller

Building your nest egg and managing it successfully takes more work than it did six years ago, but it isn’t a Sisyphean task. You can build a portfolio that will last the rest of your life.

Waiting for the political class to come to its senses is futile.

In 2008, Bloomberg reported:

“The S&P 500 slid 60.66 points … extending its 2008 tumble to 32 percent in the market’s worst yearly slump since 1937. The Dow Jones Industrial Average dropped 508.39, or 5.1 percent, to 9,447.11, giving it a 29 percent retreat in 2008 that would also be the worst in 71 years.”

Cut to the Fed’s economic rescue mission: anyone considering retirement found himself in bizarre world. Traditional, conservative investment options were wiped off the map. Millions of investors had no choice but to make drastically riskier investments and hope for the best. Which begs the question: Who was the Fed rescuing? Certainly not seniors and savers!

The recent book by John Mauldin and Jonathan Tepper, Code Red: How to Protect Your Savings from the Coming Crisis, confirmed my suspicion: the government forced us into this position by design. The authors write:

“Negative real rates act like a tax on savings. Inflation eats away at your money, and is in effect a tax by the (unelected!) central bankers on your hard-earned money. … Negative real rates force savers and investors to seek out riskier and riskier investments merely to tread water. … In fact, Bernanke openly acknowledges that his low interest-rate policy is designed to get savers and investors to take more chances with riskier investments. The fact that this is precisely the wrong thing for retirees and savers seems to be lost in their pursuit of market and economic gains.”

No wonder the stock market came back so quickly! Where else were seniors and savers going to go? Zero-interest-rate policy (ZIRP) means the yield on our safe CDs or Treasury bonds is negative, when inflation is factored in: we’re becoming poorer every day. Code Red tells us, “In a ZIRP world … savers are screwed.”

Hey, we get the point; we live it every day. There’s seemingly nowhere to go for ultra-safe yield. No matter how hard the government propaganda machine tries to convince us that happy days are here again, we know better.

The Federal Reserve has been telling us what to expect for the next several years.

In November 2013, Bloomberg reported:

“Federal Reserve Chairman Ben S. Bernanke said the Fed will probably hold down its target interest rate long after ending $85 billion in monthly bond buying, and possibly after unemployment falls below 6.5 percent.”

We are the targets. We are tired of inflation confiscating our life savings and damaging our standard of living. Our very economic survival requires a proactive stance.

Pushed by the Fed’s low-interest-rate policy, investors have poured billions into the stock and bond markets, creating a bubble.

The market is not trading on fundamentals. Savvy investors know the market is on thin ice, and as each passing month brings more treasury debt being bought by the Federal Reserve – , the ice gets thinner. But what is the alternative? Hope we are smart enough to get out ahead of everyone else when the bubble bursts? It’s as though the market has a hair trigger.

Look what happened when, in the summer of 2013, Chairman Bernanke hinted at “tapering.”

ShareCast tells us (emphasis in original):

“America’s three key US equity benchmarks ended the trading day firmly lower… after Federal Reserve Chairman Ben Bernanke signaled that the central bank could taper its quantitative easing program…

The Dow Jones Industrial Average contracted by 206 basis points to end the day at 15,112 while the Nasdaq Composite slid 39 basis points to 3,443 and the S&P 500 dropped by 23 basis points to 1,629.”

Talk about a hair trigger! He barely got those words out of his mouth before the market tanked. But this became a blessing for those who choose to look at reality.  The Federal Reserve has now resorted to a much softer message in order to calm the markets.  While they have decreased their rate of tapering, the fact remains they are still buying up $780 billion in US debt.  Many pundits are already predicting that, by mid summer, the Fed will pause their tapering as they realize the economy is not as strong as they may think.  We are a long way from having the market trade on business fundamentals.

How to Win in the New World Order

Some pundits suggest riding it out with a portfolio of the biggest, safest worldwide companies. After all, these companies have stayed in business through good and bad times and continued to pay their dividends. However, in a strong outgoing tide, even the best companies can take a beating.

If Bernanke’s comments can spook the market so easily, how can we expect investors to “hang in there” when the real bubble bursts? Can we count on a downturn of only 32%, as it was in 2008? Or will it be worse? Can we count on the market recovering in five short years? How long can investors hang on, hoping their stocks will come back?

The Dow peaked in September 1929 and didn’t fully recover until November 1954. Hang on for 25 years? Maybe younger folks can do that, but it’s much too risky for baby boomers and retirees.

Here’s my take-home statement: there is a better way.

The Lay of the Land

Let’s quickly review potential ways to invest.

• Fixed-income investments alone will not do the job. Why tie up money for the long term when those investments are guaranteed to lag behind inflation?
• Bonds have appreciated tremendously as interest rates tumbled. Should interest rates rise—which they will—our interest income will be overshadowed by losses in the share prices of the bonds in the aftermarket. Then we would have to hold the long-term bonds at below market interest rates or sell them at a loss; I’m not in love with either option.
• The stock market is trading less on fundamentals and more on stimulus; it’s in a bubble and could easily collapse, and quickly. When everyone decides it’s time to head for the exits and beat the other guy, the computer trading platforms will not only put in sell orders, but also take massive short positions.

Margin debt is now at an all-time high; margin calls will trigger, and brokers will automatically sell from clients’ accounts to bring their margin back into balance. With computer trading, this could all happen in a matter of minutes… if not seconds.

Here’s how Code Red sums it up:

“If the government benefits from stealth taxes (meaning inflation), then who is the loser? … The biggest losers are savers and older people who rely on savings. Try retiring at 60 at today’s interest rates and watch as your buying power slowly erodes as you get older. It is down close to 25% in just ten years. But your taxes and fixed expenses will have gone up! … The Fed is not going to change its policy to help retirees and pension funds, so older people are left to fend for themselves. …

When central bankers give us words to describe their financial policies, they tell us exactly what they want their words to mean, but rarely do they tell us exactly the truth in plain English. They think we can’t handle the truth.”

Who Is Screwed?

Three groups will be hurt. The first group will be those who don’t realize that the old ways of doing things no longer work and actually make things worse. Regular readers are familiar with the old “100 minus your age” rule. If you were 65, then 65% of your portfolio went in CDs and Treasuries, or so the story went. Try that today and watch your buying power vaporize by the hidden inflation tax!

The second group is those who go all in to the market. Their rationale is that stocks have outperformed other investment classes over the long term. This group will fly high while the Fed keeps them propped up, but will be taking huge risks when everyone tries to get out at the same time. With retirement money, you shouldn’t bet the farm hoping the market will recover quickly.

And finally, the third group is anyone who doesn’t see the writing on the wall and fails to take immediate, appropriate action. Unfortunately, this includes a lot of people.

So What Can Income Investors Do?

There are a number of solid investments out there that offer good return, with a minimal amount of risk exposure and that won’t move because of an arbitrary statement by the Fed. It’s not always easy to find them, but there is hope for people wondering what to do now that all of the old adages about retirement investing are no longer true.

There are three important facets of a strong portfolio: income, opportunities and safety measures. Miller’s Money Forever helps guide you through the better points of finance, and helps replace that income lost in our zero-interest-rate world – with minimal risk.

Pre-crash, if an investor bought a CD at the prevailing rate, and then interest rates rose during that period, he would not lament his loss in net asset value. He would be satisfied with the interest, and when his CD matured, he would buy another one at the current rate. So why do we look at bond funds, see our net asset value go down, and worry? Because most bond funds are always busy selling, baking in those losses along the way.

This is where the value of one of the best analyst teams in the world comes into focus. We focus on our subscribers’ income-investing needs, and I challenge our analysts to find safe, decent-yielding, fixed-income products that will not trade in tandem with the steroid-induced stock market—or alternatively, ones that will come back to life quickly if they do get knocked down with the market. They recently showed me seven different types of investments that met my criteria and still withstood our Five-Point Balancing Test.

My peers are of having holes blown in their retirement plans. While nuclear-bomb-shelter safe may be impossible, we still want a bulletproof plan.

This is what we’ve done at Money Forever: built a bulletproof, income-generating portfolio that will stand up to almost anything the market can throw at it.

It is time to evolve and learn about the vast market of income investments safe enough for even the most risk-wary retirees. Some investors may want to shoot for the moon, but we spent the bulk of our adult lives building our nest eggs; it’s time to let them work for us and enjoy retirement stress-free. Learn how to get in, now.

A Second Look at Bonds

By Dennis Miller

If you remember bond drives in school, please raise your hand. There are still a lot of us out there. I recall my teacher holding up a US Savings Bond, encouraging us to tell our parents to buy them. She went to great lengths emphasizing that they were the “the safest investment on earth.”

That same teacher gave us ten new words each week that we had to spell and define. “Safe” and “risk” both had their day. Here is how Merriam-Webster defines them:

safe

adjective sāf

: not able or likely to be hurt or harmed in any way : not in danger

: not able or likely to be lost, taken away, or given away

risk

noun risk

: the possibility that something bad or unpleasant (such as an injury or a loss) will happen

Safety is the absence of risk. When we lived in Texas, we had to take our cars in for a safety inspection. The inspector would hook up a computer and out came a checklist of items with a pass or fail mark. It’s time to do a safety inspection for those high-quality bonds considered “the safest investments on earth.”

Risk #1: Default. The risk that a loan won’t be repaid is the primary risk when lending money to anyone. When it comes to bonds, rating agencies judge that risk for you. The safest way to lend—in terms of getting your money back, anyway—is with federal government bonds or certificates of deposit, which are federally insured.

Corporate bonds are rated with a series of letters beginning with AAA. Anything below the B-ratings are generally not considered investment grade and are commonly referred to as junk bonds. If an investor sticks to AAA bonds, they will earn a little higher interest than they would with US Treasuries to make up for the increased default risk; however, that risk is very low, generally less than 0.5%, on average.

A person buying a US government bond or AAA corporate bond has close to a 100% probability of being paid back with interest. Check off the first item on the inspection sheet. PASS!

Risk #2: Inflation protection. The interest rates paid by a bond (net after income taxes), must be higher than the inflation rate throughout its life. If not, when our principal is returned and added to the interest received, our buying power will be less than it was before we bought the bond. How big of a risk can that be?

In a recent article, we looked at the high inflation during the Carter administration. We took a hypothetical investor who bought a $100,000, 5-year, 6% CD on January 1, 1977. He was in the 25% tax bracket. At the end of five years, the balance on the account was $124,600. While it sounds like more money, his buying power had actually dropped by 25.9% because of inflation.

If, on January 1, 1977, a luxury car cost $25,000, he had enough to buy four of them. Assuming the price of that car rose with inflation, it would have cost $37,500 five years later; he would have had enough for just three with a little gas money left over. I realize no one needs three or four luxury cars, but you get the picture.

Inflation feeds the illusion of wealth, but it is just that: an illusion. If your retirement nest egg does not keep up, you are getting poorer by the day. This is called “negative real rates.”

Losing ground to inflation happens with high inflation and/or very low interest rates. The following chart shows the ten-year Treasury rates compared to the inflation rate and the net yield to the investor after taxes (assuming 25% tax rate).

Unlike the days when bonds paid 6% or more, since 2010, low-interest, 10-year Treasuries have not kept up with inflation. Currently, 10-year Treasuries are paying 2.77% and 30-year issues are paying 3.80%.

We need to red flag this one. The “safest investment on earth” is a surefire loser for seniors and savers. Do you want to invest your money for 10 to 30 years in Treasuries knowing you will lose buying power to inflation the minute you buy them, and possibly lose even more in the future? Obviously not! FAIL.

Risk #3: Loss of resale value in the aftermarket. Let’s take a look at corporate bonds to better understand this concern. Currently 10-year AAA corporate bonds are paying 3.75%. If we invested $10,000, we would receive $375.00 in interest every year. Now suppose the market interest rates change, which they will. Should we want to sell our bond in the aftermarket, we have to adjust our aftermarket selling price to the competition—meaning bonds offering the current market interest rates.

Should interest rates drop, our bond will be worth more because we have a higher-than-market rate and should receive a premium. If interest rates rise, our resale value drops and we are left with two choices: we can sell the bond at a discounted price, or we can hold it to maturity and receive interest at a below-market rate.

How radically could our resale value drop? The term used for calculation is “duration.” The duration of a 10-year AAA bond paying 3.75% interest is currently 8.38. In the resale market, it serves as a rule of thumb. If interest rates rise by 1%, you can expect to discount your bond by $838.00 to sell it—that is over two years of interest payments. By comparison, if there were only five years remaining, the duration drops to 4.58, meaning you would have to discount it by $458.00.

Can anyone guarantee interest rates, which are historically low, are going to remain that way for the life of a long-term bond? With the Federal Reserve flooding the banks with money, how much longer before our international creditors are going to demand higher interest rates to hold US dollars? Safety is the absence of potential loss or harm. It’s clear that potential for loss or harm is present, not absent, in today’s world.

Grade for Risk #3: FAIL.

Combining inflation and interest-rate risk. The real challenge is guessing what might happen to inflation and interest rates during the life of the bond. Here is what happened to inflation during the Carter years:

• 1977—6.5% inflation
• 1978—7.6% inflation
• 1979—11.3% inflation
• 1980—13.5% inflation
• 1981—10.3% inflation

What happened to interest rates? The prime rate reached 21.5% in December 1980, the highest rate in US history. If you held long-term bonds prior to 1977, then you had to choose between large inflation losses or huge losses if you had tried to liquidate your low-interest bonds in the aftermarket. Seniors and savers attempting to protect their nest eggs are trying to avoid those sorts of catastrophic results.

At the time, investors buying higher-than-inflation interest rate bonds did very well. The current 3.75% rate is well below the interest rates that were available during that time frame. When interest rates rise well above the inflation rate, the safety scales will once again tilt in our favor.

Don’t let the high rating or federally insured label fool you. If a broker or fund salesperson is trying to sell you safe investments, ask them to clearly define the word “safe.” Does it include all three factors mentioned above?

Don’t judge a bond on the credit rating alone. While you may have an almost 100% probability of return of your money, the potential for inflation loss or early liquidation losses must be factored into your investment decisions.

Why have bonds changed so radically? A decade ago, bonds were a central part of any retirement nest egg. A retirement portfolio would not be complete without a balance of top-quality Treasuries and corporate bonds paying 6% or more. They did much of the heavy lifting and were considered the epitome of safety—particularly when compared to the volatile stock market.

Negative interest rates, however, have significantly elevated the risk on low-rate, fixed-income investments. As a result, investors are forced into the stock market in order to protect their nest eggs. Swinging the pendulum too far in the other direction is just transferring our capital from one high-risk investment to another. At the end of the day, we still have too much risk. There is a better way.

What is our winning strategy? Just because high-rated, low-yielding, long-term bonds are surefire losers in today’s market does not mean we should avoid bonds all together. Quite the contrary, we just have to use the right criteria to evaluate and pick them. There are literally thousands of types of bonds available in the market today, and many of them can fit nicely into your retirement portfolio.

Our team of analysts has done their homework and found excellent opportunities that meet all three checkpoints with excellent passing grades. How? By following Doug Casey’s rule to look where no one else is looking.

You can learn more about our “winning approach” by downloading your free copy of our timely special report, Bond Basics. Click here to begin reading your copy now.

Debt: The Last Social Taboo?

By Dennis Miller

Social taboos have dropped left and right since I was a young man raising a family, but one is unlikely to disappear any time soon: holding too much personal debt. But debt need not be a personal tragedy nor a badge of shame. For some, it is simply a practical problem with practical solutions. For others, however, it isn’t even the real problem.

In the last few year I’ve watched two friends handle debt quite differently, and those differences illustrate the real taboo about debt that we seem to ignore. I’ve changed names and tweaked a few details to keep peace in the world, but what follows are essentially two true stories: those of Joe Able and Tom Baker.

Both Joe and Tom are early baby boomers. During their careers, both had the external trappings of success: nice homes, luxury cars, and a good amount of other cool stuff. They earned good incomes and paid a lot in taxes along the way. They moved into their peak earning years during the Internet boom, and both of their companies flourished.

Nevertheless, neither Joe nor Tom amassed much wealth. Instead, they financed signs of wealth. Their justification: they made enough money to easily afford the payments. Neither Joe nor Tom had a problem with this approach.

In short, both enjoyed playing the role of big shot.

Well, the economy turned and their incomes were cut. Joe eventually realized he would never be able to retire because he had accumulated, well, basically nothing. This must have been terribly difficult for him.

Joe had to fess up to his spouse and family that he may have been “rich dad” for a decade or so, but things were going to have to change radically. Otherwise, he would become “poor dad.”

Joe’s wife had become quite comfortable with her life of luxury, so together they sought professional advice from his accountant and a qualified financial planner. Together they built a plan to get out of debt and accumulate some real capital. This was the only way they could ever enjoy retirement. Perhaps it would be more modest than they’d once envisioned, but that was OK.

To borrow Joe’s words, “I decided to stop the world. I wanted to get off!” He described it as a never-ending treadmill: work hard; make a lot of money; pay off bills; buy more cool and expensive stuff; repeat, repeat, repeat. So they built a plan and refocused. Joe and his wife worked together and are quite happy today.

Tom took a different road. He, too, realized his lifestyle was unsustainable. Family and professionals convened in an effort to help Tom see reality. They encouraged him to change his behavior.

Tom discussed his mounting debts and reduction in income very rationally, but he was unable to change his behavior.

As I looked at these two men, I noticed differences. Joe lived in a large city. Tom lived in the small town where he grew up. Joe was the proverbial little fish in a big pond; Tom was the big fish in a small pond. Everyone in town knew Tom as the kid who grew up and obviously really made something of himself.

What the public did not see was this. Tom’s business had a line of credit with the bank and was a good business. Unfortunately Tom maxed out his company’s line of credit and used the money for personal spending. The particular business is capital intensive and his company began to suffer. Now he had to make huge payments to the bank for fear his company would shut down.

Eventually the banks were breathing down his neck. Tom had no leverage and gave the bank whatever they needed to keep the line of credit.

Sad to say, his friends told me he became very depressed. They called him the poster child for depression spending. He had several credit cards and bought designer clothes and new toys to make himself feel good. His children said their dad had a spending addiction.

About a year ago, Tom filed for personal bankruptcy. Of course, that notification hit the local paper in the little town he lived in. Six months later, Tom had a heart attack and died in his sleep. He was not yet 65, and appeared to be in good physical health.

For many, debt is not the real problem, but rather a symptom of a much larger problem: an addiction to a self-image and a way of life. Until you address the real problem, you cannot solve the symptom—debt.

While I am not a psychiatrist, I can pick out common traits from among those who walked the walk—retired friends who have accumulated wealth and enjoy retirement on their own terms. Perhaps it is not as lavish as they once hoped, but they enjoy the absolute freedom of being debt- and stress-free. Here are some tips I have learned along the way.

• Start with a financial checkup. I have written many times about the epiphany many of us experienced when we first sat down with a financial advisor to look at our fuzzy retirement goals. It can be just the dose of reality needed to change our behavior.
• Set real, measurable financial goals. As we get closer to retirement, it is no longer some vague event that we hope will happen in a decade or so. Set firm, measurable short- and long-term financial goals.
• Build a workable plan. Achieving those milestones along the way is exhilarating—almost like a preview of what being debt-free is all about. If you just keep doing what you are doing and stick to your plan, you will make it.
• Both spouses have to be totally committed. This was another major difference I saw between Joe and Tom. Joe’s wife was a country girl whose real values in life are family and friends. Tom did not have that kind of support. He had remarried a younger woman who thought she was marrying a big shot. I guess she just married him “for better” because, when it became evident their lifestyle was an illusion, she left him.
• Realize you are not alone. As a member of Lending Club, every day I see hundreds of loan applications from people with great incomes who want to consolidate and get out of debt. It sounds funny borrowing money to get out of debt, but they want to consolidate and reduce their interest rates, which is part of the process. Many of these people are doctors and lawyers making huge amounts of money. Not only do they need to make the payments to reduce their debt; they also have to curtail their spending at the same time, something Tom was emotionally unable to do.Since 2008, when the interest rates on CDs and fixed income securities dropped to the point of not keeping up with true inflation, even folks who have managed to accumulate some wealth have had to make some tough choices when it comes to priorities. We have many friends who have owned a lot of luxury cars who are quite proud to drive up in their new Toyota and discuss how much they saved along the way.
• There is no shame in adjusting your lifestyle to the current environment. Simply put, you have to do what you have to do! While it may have been nice to feel rich during the boom times, adjusting your lifestyle and spending patterns to avoid being poor is not shameful; quite the contrary, it is prudent. Many couples tell us how they worked together and the process made their marriage even stronger. Shame? No way! Pride is much more accurate.

Once your goal is true, stress-free financial independence, it is worth giving up a lot of stuff. Unfortunately for Tom, he was such an addict he could never make the transition. Joe and his wife are happy, surrounded by loving family, and enjoy seeing their next generation grow and mature.

Being debt-free is a major step. You are halfway home. The next step is accumulating wealth. Instead of making payments to creditors, now you can start making those payments to yourself and prepare for the future.

There are many ways to avoid Tom’s fate if you get started right away. We’ve prepared a free special report that will help you take a critical look at your personal budget and categorize it to make it easier to cut out unnecessary expenses. It also provides some insight into ways to get started on improving the income side of your ledger. Click here to access this free report and get started on your path to more savings and income today.

Pension Promises Go Unfulfilled

By Dennis Miller

I don’t know which is worse: realizing you cannot keep a promise you made to someone important to you, or being the person who relied on the promise when you grasp that it is not going to be kept.

In 1973, I was 33 years old and just starting a public-speaking career. The National Speakers Association asked me to join, and I became a charter member. Our first president, the late Bill Gove, was a terrific speaker and also a great salesman—one of the top life insurance salesmen in the country for many years.

One of his favorite lines was quite telling. He would ask his prospect, “How much life insurance do you have?” The person would tell him. Bill would pause, get a funny look on his face, and deliver the punch line as a question: “You don’t plan on being dead very long?” Every time I saw him deliver that line, the audience would roar.

Were Bill alive today, he would probably be selling annuities to those same clients. I don’t understand why insurance companies don’t call annuities “enjoying-life insurance.” If they did, they would probably sell more. Somehow I can’t see Bill telling a story of asking a prospect about their retirement portfolio, and then delivering the punch line, “You don’t plan on being retired very long?” My guess is the audience would shift in their seats and perhaps chuckle uncomfortably. What’s the difference? An entire generation would know he is right; we are very worried that we won’t have enough money to enjoy retirement.

So what has changed since 1973? Most of us never thought too much about retirement when we were younger. In the 1970s, if you worked for the government, were a union member, or worked for a medium to large corporation, there was a good probability that you were guaranteed a pension, particularly if you worked there for any length of time. Couple that with Social Security and you could enjoy retirement. My dad had two pensions—one from the State of Illinois and another from the post office—and he did just that.

During my career, I trained salespeople and managers. I always warned salespeople not to exaggerate or overpromise to their clients. I told them: “Don’t let your hippopotamus mouth overload your hummingbird ass!” That line certainly got their attention. The consequences of not keeping a promise in the marketplace can be devastating. They can include the loss of a client, but also the loss of your reputation.

The corporate world, many unions, and federal, state, and local governments are all guilty of doing just that. They made pension promises to their employees that they just could not keep. I had a good friend who became a senior pilot at Delta Airlines and was quite proud the day he flew his last flight into Atlanta Hartsfield Airport. The customary fire hoses greeted his plane, and he had a big retirement party. Less than two years later, Delta filed for bankruptcy, the government took over its pension obligations, and his pension was drastically reduced. Sad to say, he passed away within five years.

The current Employee Benefit Research Institute Retirement Survey reports that only 3% of employees in the private sector have a pension plan. The rest have some sort of savings plan, like a 401(k). Corporate America has successfully unraveled from its pension promises in two ways: either companies bellied up and shifted the pension liability to the government; or they transferred the responsibility back to individual workers. It is now our job to worry about our own well-being. In effect, companies now just administrator voluntary savings plans for their employees.

While corporate America made promises it could not keep, at least most companies ‘fessed up to the economic reality, explained that making good on their promises would force them into bankruptcy, and got out from under those commitments.

Our government is doing the opposite of ‘fessing up. While corporate America is unraveling from economic promises it could not keep, governments big and small are doing the opposite. In addition to their generous pension plans, we all now have health care (even non-citizens), food stamps, longer-term unemployment benefits, etc. The list of promises goes on and on. The government has its hippopotamus mouth going full blast in every election cycle, making promises to win elections.

Those who speak up (see Ron Paul) and point out that those economic promises are going to bankrupt us all are criticized and ridiculed. Unfortunately, there is one major difference between corporate America making promises and the government doing the same: the government is making promises with our money! It is driving us into bankruptcy. When that happens, the value of a country’s currency will normally collapse, destroying the wealth of seniors and savers in the process.

While it may be bleak, it is not hopeless. I recently read John Stossel’s latest book, No, They Can’t: Why Government Fails—But Individuals Succeed. The book outlines our current predicament in very easy-to-understand terms. It also strengthened my personal resolve and gave me hope… a funny choice of words, as I think about it.

Every day, more people see these promises for what they really are: hollow and illusionary. There is no point in debating whether they were made in good faith or not. Who the hell cares? The real issue is: they are promises that are financially impossible to keep.

John’s book reinforced what I already knew: Americans are a hardy lot, and a lot of us succeed in spite of horrible obstacles placed in front of us. The first step is to pop the illusion bubble, accept the responsibility for our own retirements, and get on with the job.

Oh, and to address the question I asked in the first paragraph. Worrying about breaking a promise is only important to folks with a conscience—not the kind of people who will just tell others whatever they want to hear. Guess what? We are on to their game and their phony promises. Educated, take-charge retirees can thrive when they put their minds to it. The government may renege on their promises, but we will succeed in spite of that.

I was so impressed with Stossel’s book that I invited him to join us for an exclusive discussion on the challenges facing seniors. In addition, I’ve pulled together other experts including David Walker, former Comptroller General of the United States, and Jeff White, president of American Financial Group, to give you practical solutions to today’s financial challenges.

Our event, America’s Broken Promise: Strategies for a Retirement Worth Living is free, and is available on-demand. Act now to watch this special event and learn more about the challenges facing retirees and savers.

Defend Your Life

By Dennis Miller

It’s all too easy to get lost in the misinformation and politicking surrounding Obamacare. Dr. Vliet, an independent physician and the past director of the Association of American Physicians and Surgeons (whom I had the good fortune to meet when she spoke at the last Casey Summit) graciously agreed to sit down and clear the fog shrouding the new healthcare law for us. A warm thank you to Dr. Vliet for carving out time in her busy schedule to chat with us today.

Dennis Miller: Thank you for speaking with us today. I’ve been fielding reader questions on Obamacare, and, as with all topics, I strive to give straightforward answers.

Betsy McCaughey, Ph.D., former Lt. Governor of New York, has written a book titled Beating Obamacare: Your Handbook for the New Healthcare Law. According to her research, seniors will be hit the hardest. McCaughey recommends that seniors get hip and knee replacements and cataract surgeries done before January 1, 2014, as these procedures will become particularly hard to get.

I want to set cost concerns aside for a moment and focus on care. There’s no point in worrying about money if medical care is unavailable or inaccessible. Can you expand on the issue of care being denied, particularly for seniors?

Dr. Vliet: The goal of the new healthcare law—AKA Obamacare—has been to reduce expenditures for medical services to seniors and shift those funds into the Medicaid expansion providing medical care for younger people. Ezekiel Emanuel, Rahm Emanuel’s brother and Obama’s initial White House Health Policy Advisor, has described this fundamental transformation of American medical care in detail. He wrote a number of medical papers describing his “Complete Lives System,” in which he outlined two major goals for the delivery of medical services in the United States:

1. Medical care is to be “attenuated” (i.e., rationed) for those older than 45 and younger than age 15, so that medical resources can be concentrated on those whom bureaucrats deem most “valuable” to society.
2. Doctors should be taught to do away with the Oath of Hippocrates and its focus on the individual patient. Doctors should instead be taught to make medical decisions aimed at what is good for the “collective,” or society as a whole.

Emanuel’s views underpin the philosophy behind the Obamacare law. They are the primary reason that over $700 billion was cut from Medicare (source: the Congressional Budget Office) and shifted into the Medicaid expansion for medical services for younger people. The older (and “less valuable” to society) one is, the harder it will be to have medical care approved.

Many people have been satisfied with Medicare as delivered in the past. However, Medicare as we have known it ended with the 2010 passage of the new healthcare law.

Keep in mind: You simply cannot have today’s level of medical services going forward when over $716 billion have been cut from the Medicare budget over the next decade. These Medicare cuts reduce hospital, skilled nursing care, home health, hospice, and other services for seniors that have been covered by Medicare in the past. The priorities in the 2010 healthcare law were very clear: seniors have already lived their lives, so healthcare dollars are being shifted to medical care for younger people.

And that doesn’t just include the surgical procedures Betsy McCaughey mentioned. It is also medications, treatments, and procedures for cancer, cardiovascular, neurological, and many other conditions. For many years, patients in the UK and Canada have been denied the latest drugs for breast, prostate, lung, and stomach cancers. They do not have access to the same medications for early treatment of macular degeneration, MS, rheumatoid arthritis, or Alzheimer’s disease that American patients currently have. Nor do Canadian nor UK patients, under the National Health Service government-controlled approvals, have the early and frequent screenings for breast and prostate cancer currently available to American patients. Consequently, survival rates with these common cancers are much better in the US than in either Canada or the UK.

Dennis: If Medicare or our insurance companies say they will not pay for the treatment, can we just go ahead and pay for the treatment out of pocket?

Dr. Vliet: The rules and regulations are different for patients using Medicare (i.e., over age 65), Medicaid (i.e., under age 65), and for those using non-Medicare, non-Medicaid, ACA-compliant health insurance policies. For Medicare patients, payment regulations under federal law vary depending on whether the patient sees a Medicare-contracted doctor, a doctor who has legally opted out of Medicare under the federal rules for doing so, or is seeing a doctor who simply hasn’t enrolled in Medicare.

Each situation is different, so there is no easy answer—and of course, that in turn makes it difficult for patients to plan for medical expenses that a particular policy does not cover. It’s likely to become very frustrating and more costly for patients.

In some situations, like lab tests and imaging studies (MRI, CT scans, etc.), it is possible for patients to sign an Advance Beneficiary Notice, or ABN, in which patients agree to pay for tests that Medicare doesn’t cover. If Medicare does not cover a test and the patient does not want to pay for tests, it is more difficult for a doctor to make an accurate diagnosis. Patients sometimes think they can pay cash to get in to see a doctor who has stopped taking Medicare patients, but doctors are not allowed to use the ABN forms for services like office appointments that Medicare does cover just to allow patients to pay cash or a higher fee to be seen by that doctor. The details of these complex rules are beyond the scope of this interview.

As the Medicare budget cuts continue, I fear the list of non-covered services will quickly grow and we will see fewer doctors participating in Medicare, making it harder for patients to find doctors. In fact, that is already happening.

On the non-Medicare or “private” insurance side of the coin, most polices have clauses called “enrollee hold harmless” clauses that prevent patients from paying cash for medical care that a plan reviewer has deemed “medically unnecessary” based on age or condition. Frank Lobb covers the details of this hidden problem in depth in his book The Great Healthcare Fraud.

Patients don’t have an easy way to find out about these obstacles to paying cash. These clauses are not found in patients’ contracts with their carriers, they are only in the contracts between doctors and insurance companies or between hospitals and insurance companies. When hit with this situation, a patient’s only option is to seek the medical treatment they need from a hospital or doctor independent from that particular insurance plan.

Dennis: Who makes these arbitrary decisions, and how can we appeal them?

Dr. Vliet: The Center for Medicare and Medicaid (CMS) and the newly expanded Department of Health and Human Services (HHS) are the ones who write these rules. Even the people who work for Medicare and HHS can’t keep up with the complexity of it! No wonder patients are confused and bewildered.

What I find really frustrating is I get different answers from Medicare offices in the different states in which I practice medicine. If I cannot get a straight answer, then I can’t very well explain it to a patient. So I legally opted out of Medicare in 1997. I answer only to my Oath to serve the patient “to the best of my ability and judgment.”

Private insurance plans have always had appeals processes, and most physicians use those regularly to help patients get medical services that might be denied coverage the first time around. But once the Independent Payment Advisory Board (IPAB) goes into effect in 2015, there is no appeal to decisions made by IPAB: that’s why they are called “independent”— not even Congress nor the Supreme Court is allowed to override the IPAB decisions.

Betsy McCaughey writes that the law says IPAB “recommends,” but what isn’t addressed is their “recommendations” automatically become law unless Congress passes a different plan to achieve the same cost reductions as IPAB recommended, and Congress must pass this plan with a three-fifths supermajority vote during a two-week window in 2017. That’s unlike anything we have ever had before. McCaughey points out that the IPAB is an unelected group of political appointees essentially making law and usurping the role of Congress, yet isn’t accountable to anyone except the president.

Dennis: Wow! Let’s discuss cost for a moment. My friend Jeff White has voiced a concern shared by many. With no risk selection and underwriting permitted; with forced acceptance of people who clearly are not taking care of themselves or have costly medical conditions; with loss of cost controls in general, health insurance costs will have to go through the ceiling. What is your take on this?

Dr. Vliet: He is exactly right. We have not had “insurance” in the correct sense of the term for more than 40 years. What we really have is prepaid healthcare—but a perversion of this since we pay the premiums and they (government bureaucrats or insurance clerks) decide what they will “reimburse” to cover medical services our doctors think we need.

Most of us in the medical profession acknowledge medical care wasn’t the problem; it was our broken payment system. People in the individual (vs. employer-based) market were having a hard time getting individual coverage if they had significant medical issues. People also don’t realize two other fundamental problems in the health insurance market:

1. These problems were not a failure of the free-market system, but rather were due to government intervention and distortion of the free-market system, primarily government regulations that affected the cost and type of insurance available to consumers.
2. The 2010 healthcare law prohibits any private insurance company from offering a policy that does not comply with the Obamacare rules for coverage. That is why so many policies—for perhaps as many as 93 million Americans—are being canceled. It’s the healthcare law itself that is forcing insurance companies to cancel policies that do not comply with the expanded coverage requirements. When a government-required level of insurance requires the policy to cover almost all preventive services, plus medical/surgical and psychiatric treatment for the entire population, the cost is going to be exorbitantly expensive.

Dennis: As a capitalist, I can see there will be a need for health care that is denied by the system—maybe doctors banding together in clinics or small hospitals, for example. Can physicians and patients just opt out of the system?

Dr. Vliet: Obamacare regulations severely limit doctors from starting new doctor-owned hospitals in the US. Some enterprising groups are beginning to develop such clinics in Mexico and other countries, and it may be possible to set up clinics in “medical freedom zones” on the sovereign lands of Native American tribes that avoid Obamacare restrictions. Right now, however, such options are very limited and certainly cannot serve the huge number of people who will likely need them as medical care is further rationed (especially for older people).

Regarding physicians and patients opting out altogether: Patients who opt out and do not buy an ACA-compliant health insurance policy will have to pay the penalty (or tax) for not doing so. For now, physicians can opt out of Medicare, Medicaid, and even private insurance contracts and simply do “fee for service” agreements with patients, like lawyers and accountants already do. But if the US moves to the same model as Canada, doctors may be denied a license to practice medicine unless they are part of the government-controlled Medicare and Medicaid.

Dennis: I have Canadian friends who tell stories about family and friends needing eye surgery or heart bypass surgery and having to wait months for those procedures. So they come to the US for care instead. In many cases, had they not done so, they wouldn’t have lived long enough to keep their Canadian appointment. Is this where we are headed?

Dr. Vliet: Most certainly, that is exactly where we are headed. Long delays are the fundamental flaw in all government-run medical systems. It is only the free-market, voluntary delivery of medical services that has brought the price down and improved availability of services. Just look at Lasik eye surgery and lap band gastric surgery and note how competition and comparison shopping have brought prices way down over the last decade.

Dennis: I like to think of myself as a practical guy. What can we do to stay as healthy as possible and get affordable, quality health care on our terms?

Dr. Vliet: The most critical thing everyone can do is take responsibility for lifestyle choices. Our “bad choices” are the biggest cause of most of the diseases that hit us as we age and rob us of health and vitality. These are things we can all actually do that will help lower medical costs and keep ourselves healthier and better able to recover if we do have an illness.

These are things my grandmother taught me—they aren’t rocket science—and you will even save money if you do them. Eat less, eat a balanced diet, always eat breakfast, exercise more, maintain a healthy body weight, get enough rest, don’t smoke, don’t drink alcohol in excess, don’t overuse prescription medicines, don’t use street drugs, practice stress management, engage in a regular spiritual practice. While this advice sounds boring, these commonsense lifestyle choices have been shown in many research studies to prolong life, preserve quality of life and vitality, and to reduce medical costs.

In addition to these practical tips, for the last several years I have encouraged my patients to set up international health insurance policies to give them options later on. Not everyone has the money to pay cash for medical care, even when going to lower-cost countries. But you have to get international policies before you’re too old or too sick to qualify. Most companies do not offer these policies if you’re over 70, or in some cases 75. There are many companies offering such plans.

I also encourage my patients to set up international bank accounts so they’ll have money overseas in the event they need it for to pay for medical care that may be denied or delayed here at home. Call this account your “international health savings account.” Even if it won’t have the tax advantages of HSAs under US rules, at least the money will be there if you need overseas medical care. Overseas bank accounts are legal as long you comply with US reporting rules. This is a step to take before the US government further limits our ability to move money into other jurisdictions.

Dennis: Thank you for taking your time to fill in some of the blanks regarding Obamacare.

Dr. Vliet: Thanks, my pleasure!

Obamacare is just one of many subjects of particular importance to today’s retirees and soon-to-be retirees. If you want commentary like this on the news that is most important to you, sign up for the free weekly newsletter Miller’s Money Weekly.

Ten Pillars of Financial Independence

By Dennis Miller

Young folks can usually digest a difficult message more easily when it comes from someone who is not: (a) their parent; (b) their teacher; nor (c) anyone else whose lectures they are sick of hearing. In that spirit, we’re starting out 2014 with 10 ways people of any age can safeguard their financial independence. Please feel free to pass it along to anyone in your life who could use a nudge in the right direction from someone other than Mom and Dad.

Wealth is not gauged by how much money you make, but rather how much you keep. Accumulating wealth, regardless of your age, gives you options and independence. It’s sad when people toil in jobs they hate because they need the money. Anyone in that position finds their employer controls their time and, sad to say, much of their happiness (or lack thereof).

We all want to be free to enjoy our lives in the manner we choose. Those who manage to achieve this state of nirvana have internalized these 10 pillars.

Pillar #1: Do Not Make Debt a Way of Life

Debt is enemy number one of financial independence. Let’s take a look at the most common form of debt, a home mortgage.

Joe and Suzy are in their late 20s with a young family. They’re tired of paying ever-increasing rent and want to buy a home. They sacrifice and save $50,000 for a down payment on a $250,000 home.

Joe and Suzy chose from two mortgages, both charging 5% interest. One is based on a 20-year amortization, and one has a 30-year amortization. How much will the home really cost them?

If they choose the 20-year mortgage, their payments are $1,319.91 per month. If they choose the 30-year mortgage, their payments are $1,073.64 month—$246.27 lower. By choosing the lower payment, they’re adding $69,732.00 to the cost of their house. Why did it cost so much more? Because of the rent they paid on the money they borrowed for another decade. Had they been able to make the higher payments, they would have 10 years with no house payments to accumulate wealth for retirement.

If, instead of paying the mortgage, they saved $1,319.91 a month for the next 10 years after they’re done with the home loan and earned 5% interest on their savings, they’d end up with $204,958.63 in savings at the end of the tenth year.

Therefore, their choices are to sacrifice a bit now so that in 30 years they have a home paid for and $204,958.63 in the bank, or a slightly smaller house payment and a home paid for without a good start on their nest egg. Many of the choices you make 10-20 years ahead of retirement can pay off very well when you want to retire.

I’m a firm believer in paying for your home as soon as possible. Unfortunately, beginning with a starter home and moving up to McMansion after McMansion has become commonplace; this habit can make it practically impossible to pay off your home in a timely fashion.

Pillar #2: Saving and Wealth Accumulation Are Different

Some of the happiest folks at our 50^th high school class reunion still lived in modest homes in nice neighborhoods which they had bought in their 20s and 30s. These homes had been paid off for years, and they managed to accumulate a lot of wealth when they no longer had to make house payments.

On the other hand, those who bought McMansions were trying to sell and downsize in a down market. They needed equity from their homes to enjoy financial independence in their golden years.

Financial independence and happiness comes to those who live within their means and make wealth accumulation a major priority. Financial independence is relative, and your attitude plays a big role. For some, financial independence means living in a doublewide in a 55-plus community; for others, it means million-dollar homes and five-star travel. My wife and I have friends in both camps, and it makes no difference: they have all put themselves in a position to enjoy a lifestyle they can afford without major financial worry.

Pillar #3: Never Go into Debt to Buy a Toy

This is a personal favorite. Whatever your toy of choice—a boat, motorhome, four-wheeler, you name it—if you want it badly enough, save the money to buy it. Interest rates on toys are exorbitant because they depreciate so rapidly. I have too many friends who borrowed thousands of dollars for a boat, made extra payments, and still had to write a check to the loan company when they sold it. I get it! It’s damn tempting, but just don’t do it.

Pillar #4: Consider the True Cost, Not the Monthly Payment

This is tough when you have the hots to buy something. If you cannot purchase something outright, its true cost includes the price of renting someone else’s money, plus the depreciation.

Thinking in terms of monthly payments can keep a person in economic slavery for life. We’ve all seen folks get a nice raise and immediately buy more cool stuff because they now can afford more monthly payments. This is nothing more than a treadmill of earning income and making payments, with little chance of real wealth accumulation.

We’re investors in Lending Club and see hundreds of loan applications from people who’ve finally realized that financial independence requires accumulation of wealth, not stuff. They borrow money to consolidate their debt, cut up their credit cards, and try to get back on track. This can easily take 5-10 years for folks with massive debt. If they finally get it at 50, they may have to set retirement back a full decade or more.

Pillar #5: Wants Are Not Needs

Wealth accumulation and financial independence must trump the “need” for stuff. Throw off the economic shackles! Financial freedom is attainable if you free yourself from stuff.

Pillar #6: You Are Responsible for Your Own Behavior

If you’ve ever been the parent of a teenage driver, at one point or another that teenager likely received a speeding ticket. The commonsense solution: make the teenager pay the ticket and any increase in the insurance. He who creates the problem should create the solution.

Pillar #7: Behavior Has Both Short- and Long-Term Consequences

By our 50^th class reunion, we’d lost many classmates to lung cancer. These were the same kids who’d laugh as they lit up a cigarette and call them “cancer sticks.” They were quite right. Incredibly, many of them, knowing the risk, smoked right up until the end; they didn’t change their behavior and suffered the consequences.

It’s not like big spenders don’t know the consequences of not saving; they’ve heard the message before. Yet they continue the same behavior and end up with a predictable result: little to show for their efforts at the end of their working career. Some people justify their behavior by thinking they can live on Social Security post-retirement. The few I know who are in that situation are not financially independent; they’re back working at lower-paying jobs they can ill afford to lose.

Pillar #8: No One Owes You Squat!

If you think anything is owed to you, prepare yourself for a rude awakening. Yes, that means you are responsible for your own retirement, health care, and everything else you need. While you may have a pension or guaranteed healthcare plan today, check the promises made by the government or your employer. Many of those promises are impossible to keep.

Too many people retired counting on their pensions—public and private. These folks kept up their end of the bargain, but that makes little difference when there’s no money to pay them. Future generations need to learn from those mistakes.

Some friends recently told us their children got jobs at the police and fire departments. They were pleased because they thought they could work hard, earn a decent living, and have a nice pension waiting for them in a few decades. Ask anyone who worked for the City of Detroit what they think about that plan.

Don’t spend your money thinking you can count on others to support you in your old age. They might, but you’ll lose your independence and probably not be happy. Too many people in this situation have never learned to save; they allowed someone else to do it for them. Save more than the minimum. You will never regret it.

Pillar #9: Something for Nothing Teaches a Bad Lesson

We’ve all heard stories of people winning millions in the lottery and quickly going broke. Ever heard of “Sudden Wealth Syndrome?” There is such a thing, and it’s completely related to a huge (often unearned) windfall.

Why do seemingly intelligent people who suddenly have a lot of money blow it? Their first reaction is to look at all the cool stuff they can buy. If you win $10 million and buy a $2 million home, you still have $8 million left. Then again, if you also bought a $1 million boat you still have $7 million left, much more than you ever had before. That rationale soon leads people right down the drain, and the money is gone.

Pillar #10: Live off the Interest and Never Touch the Principal

I saved the most important pillar for last.

In the case of lottery winners going bust, it’s almost always the same: If you won $10 million and invested it wisely, you could easily net $500,000 a year while your portfolio grew ahead of inflation. In most cases, the income from their winnings could provide a phenomenal lifestyle. And they could pass along the money and sound financial principles to their children.

I recall Johnny Carson discussing having a lot of money with Bert Reynolds. Carson commented, “Having money means you never have to worry about money.” While that contains some truth, it’s an oversimplification. You also don’t have to worry about all the things you have to do to earn money. That’s what causes stress and takes years off of our lives.

Having money is important, but it’s only part of the puzzle. Understanding what money means, what it can do for you, and prioritizing wealth accumulation are also critical pieces.

If I have to make a choice between leaving my children and grandchildren with money or the basic principles of growing and maintaining wealth, I’d choose the education every time. It will make them hell-bent on keeping the money they earn and educating the next generation to do the same.

If you’re of a like mind and want to give the gift of a financial education, click here to share a premium subscription to Miller’s Money Forever with a loved one. Call it a belated holiday gift—no wrapping required.

Having No Exposure to Energy Risk is Risky

By Dennis Miller

Because Marin Katusa is the foremost expert on all things energy, I’ve been eager to pick his brain for our subscribers. Marin, an accomplished investment analyst, is the senior editor of Casey Energy Dividends, Casey Energy Confidential, and the Casey Energy Report. He is also a regular commentator on BNN and other major media outlets.

Dennis Miller: Marin, welcome. Thank you for taking the time to share your knowledge with our subscribers.

Marin Katusa: Thanks for having me. It’s my pleasure.

Dennis: I know you are aware that our subscribers are mostly baby boomers and investors on either side of the cusp of retirement. We focus a lot on diversifying among sectors and minimizing risk within each sector. Can you explain where energy opportunities should fit in to our subscribers’ portfolios, including both low- and higher-risk investments?

Marin: It’s a Catch-22 for the mature investor today. Everyone is chasing yield, thereby propping up the prices of yield plays. Dominant companies in the energy sector pay a good dividend and have appreciated very nicely.

Now, I can’t emphasize enough how important it is to lock in gains by putting in Casey profit stops. 25-40% gains on big energy companies are equivalent to double and triple gains in the junior market. Don’t be scared to sell.

For your subscribers, only invest in juniors – which are high-risk investments – with money you can afford to lose. That means no more than 10% of your portfolio. Now personally, I don’t follow that advice, but I’m nowhere near the age of your audience. The younger you are, the more time you have to build your non-risk portfolio. While the juniors can make you tremendous wealth, they are also the riskiest investments in the world.

Every investor should also think about the percentage of his portfolio exposed to the energy sector. It’s mind-blowing to me that investors in your age bracket often have 10% of their portfolio in gold stocks, but very little to none in the energy sector. Globally, the energy sector dwarfs the gold sector, and I believe 10% of everyone’s portfolio – including your readers’ – should have exposure to energy investments. For your audience, 90% of that 10% should be invested in less risky energy companies, and 10% should be in riskier junior energy stocks. Nothing is more pleasing to a portfolio than investing in a company at under US $0.25, and having the stock run to over US $7 (an over 2,500% gain).

Dennis: When I talk about speculative picks, I like to use an analogy. When it comes to pharmaceutical stocks, they usually have a lot of intellectual capital. When their research moves along the FDA approval process, a larger company will often buy them out and bring their product to market. In effect, speculative companies are like a research and development arm for the industry. The same is true in junior mining. Once they discover and have provable reserves, a larger company generally buys them out and mines those reserves.

I know big oil companies do most of their own exploration, but a uranium company might not have the ability or capital to build a mine. Can you explain the nuances of the energy sector in this regard and the investment implications for us?

Marin: Let’s start with oil.  My publication was the first to publish on the potential of the East African Rift and Africa Oil (V.AOI). It was on no one’s radar, and no majors were in the area at the time we first started writing and recommending stocks in the area. Essentially, the oil and gas play for juniors is to get in early and prove up a new concept, locking up a PSC and getting the license to actually do some exploration work. Africa Oil is a perfect example of that, and AOI was able to attract a much bigger company to fund the risk. That stock had over a 1,000% gain.

There’s a similar game plan with shale gas: get in early, and stake up large blocks of land based on a geological concept that the majors are not looking at. Cuadrilla is a perfect case study in that game plan. It staked up some land for very little, proved a concept, and delivered exceptional returns for its shareholders.

In the energy sector, majors are attracted to juniors that have large sections of land with large, previously unrealized potential. The early days of the Eagle Ford oil shales are a good example of this. Smart companies were buying up land for $100 per acre, and in a few years the same land was going for $25,000 per acre.

Profiting from Energy Now

Dennis: I know you have had some phenomenal success in smaller energy picks in the past. At the Casey conferences, many subscribers have told me you made them a lot of money. Do you see any good opportunities on the horizon? If an investor wanted to take advantage of these opportunities, are they better off with an individual company or with an ETF or mutual fund in that sector?

Marin: I’ve never been a fan of ETFs. Also, I don’t like public mutual funds because few ever beat the indices, and investors pay ridiculous fees.

I think there are some excellent energy investments to be made today. But first, a potential investor has to ask himself: “What is my risk tolerance, and what is my time frame?” Africa Oil, Cuadrilla, and Uranium Energy Corp. were all major successes, but they were all very high risk, and it took over 18 months for each success to be realized.

If you do your homework, investing in an individual company will deliver superior gains than an ETF or mutual fund.

Dennis: I know you spend a tremendous amount of time in the field evaluating opportunities. Do you use a process for evaluation similar to Doug Casey’s Eight Ps?

Marin: The most important P to me is “People.” Actually, average people will screw up the best company, and if you invest in the right people, they can turn around the worst company.

The Projects and Politics are also on the top of my list. All the 8Ps are important, but those are the top three in my book.

American Nuclear Power Dependence

Dennis: I recently watched a webinar you did with some real experts on nuclear power and uranium. You cited some surprising statistics I had never heard before, about the number of homes in the US that rely on nuclear power and the number that rely on uranium from Russia. Can you share some of that information for our readers, as well as the investment and security implications?

Marin: Here is another startling fact that, if you are an American, I’m sure you will have a major issue with. In 2012, more uranium was produced by a Russian company on American soil than by all American producers combined on American soil. I’m sure Russians like that fact, but not so much Americans.

Also, the US imports over 90% of the uranium it consumes annually. It is by far the most contrarian investment in energy today globally.

The only solution for the security issues is to pay a higher price for uranium… or 20% of the homes in the US could go without electricity. Talk about creating a chaotic event. The sector and commodity are cheap, and producers cannot make money at current prices.

Dennis: Once a utility has gone through the long, expensive process of building a uranium facility, it is pretty much committed to that one type of fuel. It doesn’t seem to have the latitude to convert, like a lot of utilities did from coal-fired plants to gas. Is that correct?

Marin: There is a misconception that thorium can be substituted for uranium in the reactors. Nothing can substitute for uranium in the existing reactors. In fact, even if the price of uranium doubled or tripled, the increased costs to creating nuclear electricity would be negligible. Once the plant is built, the big costs are paid for.

I think your real concern is this. If the price of uranium rises – as I believe it will – the US utilities will pay whatever it takes to buy their fuel, and that cost will be passed on to the American consumer. There is no realistic Plan B.

Dennis: Is uranium where you see the next best opportunity for huge investment gains? And if so, what caution would you offer to those subscribers who may be close to retirement and do not have the benefit of a do-over with their investment dollars?

Marin: Every investor needs to know his time frame for investing. If an investor is looking to earn yield from uranium, then he should invest in the larger producers. The way to invest in uranium with the lowest risk is to actually buy uranium. There’s no political, production, exploration, or management risk involved. However, you can’t exactly buy uranium and store it beside your gold and silver coins.

We recently put together a special report in which we discuss exactly how investors can get exposure to the lowest-risk uranium investment in the world, which actually owns uranium (U₃O₈) and also uranium hexafluoride (UF₆).

If you’re looking for higher-risk exposure, we’ve had some great success with Fission, which we recently sold for over 100% gains, but it doesn’t pay out a dividend, and produces no uranium. The company explores for uranium.

The Future of Oil

Dennis: We see the price of oil fluctuate regularly. In the long run, how much effect does that really have on the price of energy? You make a great case for uranium; since demand is going to far outpace supply, prices should rapidly escalate.

Marin: The reality is, most oil reserves are in countries that are not friendly to the US, and that oil is produced and managed by national oil companies.

Take Venezuela for example, which has some amazing oil deposits. The US imports almost as much oil from Venezuela as it does from the Canadian oil sands, and yet it pays almost twice as much for Venezuela’s oil as it does Canada’s oil.

Now, is Venezuela reinvesting the profits back into exploration and replacing produced oil? No. Venezuela is actually decreasing oil production, and yet domestic demand is increasing. This is what we call “the big pinch.” Thus, the only solution for Venezuela is to sell less oil, but for a much higher price.

Venezuela is not alone in this problem. Most of OPEC has this problem. Oil will go higher in the years to come. Porter Stansberry bet me 100 ounces of silver on my oil price prediction, and he lost. I offered him double or nothing, and he refused. And it’s not just oil; all energy fuels are going higher.

Dennis: One final question. Energy stocks have been somewhat out of favor over the last few years. What do you anticipate for the next couple of years?

Marin: That is a good thing. You buy when things are unpopular and sell when they become popular again.

The world will need more oil, uranium, and natural gas to keep the global economy going. Higher prices for uranium will result in increased attention by the hedge funds chasing gains. And because the sector is so small, those who are positioned early will make incredible gains only if they sell when it becomes popular – which we will definitely do when it’s time.

Companies bringing North American technologies to old, proven, producing deposits to enhance production will also see considerable gains. For example, there are areas of Europe that produced oil before the first oil well was ever drilled in Texas. Those areas have never seen modern, North American technology, and the projects are de-risked because we already know the oil is there. These areas have produced in the past, and the infrastructure is in place, which means lower costs for implementing enhanced oil recoveries.

Not to mention, Europe depends on Russia for so much of its energy needs, and it pays a premium for that dependence. I think in the coming years, the European energy renaissance will be an area from which to profit.

Dennis: Marin, it looks like we are on the verge of some major changes here in the US. Not only will nuclear energy prices climb, but our electricity bills will also. I really appreciate you taking the time to teach our subscribers about the energy sector. If we have to pay higher electric bills, we need to profit too. Thanks for taking the time to help us.

Marin: My pleasure, Dennis; thanks for having me.

As the editor of Miller’s Money Forever, I often have the pleasure of interviewing my colleagues on a variety of topics to give our subscribers even greater exposure to different investing sectors. Recent interviews include:

• Maximizing Your IRA with Terry Coxon, senior economist and editor at Casey Research;
• The Ultimate Layer of Financial Protection with Nick Giambruno, editor of International Man;
• Juniors for Seniors with Louis James, globe-trotting senior editor of Casey Research’s metals and mining publications; and
• Other esteemed colleagues.

Gain access to everything our portfolio has to offer, as well as access to these top minds through occasional interviews and input, with your risk-free 90-day trial subscription to Miller’s Money Forever.