One of the first suggestions many financial planners offer as a way to trim needs is a reduction in housing. Downsizing the home reduces the mortgage payment and may even eliminate it.

But with housing prices down, many homeowners balk at putting their home on the market. They worry they won’t get the proper return on their investment. However, the market should not be the driving factor in making this decision, according to financial adviser Scott Marsh. Instead, homeowners need to look at their own personal big picture. Debt is a negative investment and anytime a negative investment can be eliminated, it’s wise to do so — notwithstanding the current housing market. Yes, they’ll be selling low, he acknowledges, but they’ll also be buying low. The goal should be to eliminate mortgage debt completely.

Another possibility Marsh suggests is a reverse mortgage. These mortgages are a type of home loan available to seniors that allows homeowners to convert equity into cash. The obligation to repay the loan is deferred until the home is sold or the owner moves or dies.

Though reverse mortgages have become increasingly common during the past 30 years, Marsh still sees clients who resist the idea. “They say, ‘I want the house to go to my kids,’” he explains. But in a world where fewer than 15 percent of private companies offer employee pension plans, and where Social Security payouts are about to drop in real value, Marsh believes reverse mortgages are going to become a way of life for many more people in the near future. “I call them the 2030 Pension Plan,” he laughs, explaining that by then, retirement income needs will make reverse mortgages a necessary option for many.

As with a standard mortgage, the way for people to maximize their reverse mortgage benefit is to eliminate debt. “People will want to take a paid-off home into retirement,” Marsh predicts.

Other areas where Marsh sees room for reducing retirement expenses include food and medications. In his experience, some seniors become less conscientious about food expenditures. He encourages clients to plan menus ahead and purchase in advance, which can cut the household food budget by up to 50 percent. Shopping around and buying in advance are also important ways of reducing medication expenses.

Marsh’s final suggestion concerns travel. For many people, retirement dreams include plans for exotic vacations. But Marsh points to the recent “stay-cation” trend as a good solution for retirees. The question many ask is, “Can I accomplish the emotional release, relationship development and curiosity satisfaction that travel offers while staying closer to home?” Marsh’s research suggests the answer is yes. He cites a client in Arizona whose neighbors sponsor short trips for each other. The people who participate report a great sense of fulfillment. They enjoy learning about their local environment, and when they particularly enjoy a locale, it’s close enough to visit again.

Marsh recommends sitting down with a financial adviser for more information about reverse mortgages and the other strategies he recommends. Remember, your retirement plan should be as tailored to you as are your retirement dreams.

Featured in the July/August 2009 issue of Zions Bank’s Community magazine.

See entire series

In part three, we discuss investment strategies during today’s economic downturn.

Imagine you’re in a large building with numerous elevators, says David Magee, president of Contango Capital Advisors, Inc. “One opens and you step in with the expectation that it will take you up. Though you may start in the desired direction, imagine that the elevator suddenly reverses course and takes you to the basement instead. For most people, this is exactly what has happened to them and their investments over the course of 2008.

“In 2008, the S&P was down, the Dow was down,” Magee continues. “By its own admission, the famed Harvard Endowment, with a long history of consistent double-digit returns, is expected to be down as much as 30 percent. From the small mutual fund investor to the wealthy hedge fund investor, and from the unsophisticated do-it-yourselfer to the most sophisticated institutions, hardly anyone was spared.

“So, continuing our analogy, chances are you have unexpectedly found yourself in the basement. What do you do now?” Magee says. “Well, assuming your investments are liquid, meaning they are readily convertible into cash, you have choices. First, you could sell what you have and hold cash until you see clear evidence that elevators are moving up again. We might think of this as waiting it out in the basement lobby. Second, you could sell what you have and use the proceeds to purchase a different investment strategy; in other words, switch elevators. Third, you could stay with your current strategy and wait for it to move up again.”

Which strategy does Magee recommend? “Unless you have a near-term cash need, the first option — however emotionally attractive — is probably not the best one,” he says. “Here’s why: In your attempt to ‘time the market’ you are likely to ‘miss the market.’ History demonstrates that, generally speaking, markets tend to move upward in spurts. Investors who aren’t invested on the spurt dates experience significantly lower returns than investors who are. Moreover, these spurt dates are all but impossible to forecast.

“As for options two (switching elevators) and three (staying with your current elevator), these are worth some discussion,” Magee says. “In times of severe crisis, markets tend to move in tandem. We say they are ‘highly correlative.’ That’s why virtually everyone ended up in the basement. As the crisis abates and conditions improve, markets will, generally speaking, become less correlative. As a result, different markets are not likely to improve simultaneously and at the same rate. Hence, some elevators will move up sooner and more quickly than others.”

Magee recommends sitting down with a financial adviser to review your current situation and asset allocation to determine the best strategy for moving forward. Remember, your retirement plan should be as tailored to you as are your retirement dreams.

David Magee is president of Contango Capital Advisors, Inc., the wealth management affiliate of Zions Bancorporation. The opinions expressed in this article are his and not necessarily those of Contango or Zions. Contango Capital Advisors, Inc. (www.contangoadvisors.com), offers an innovative approach to managing assets. It focuses on individuals’ real-life goals and uses sophisticated analytical techniques and risk-management tools to design clients’ investment portfolios.

Please note: Investment products and services offered through Contango Capital Advisors Inc., a registered investment adviser and a nonbank subsidiary of Zions Bancorporation, are NOT insured by the FDIC or any federal or state governmental agency, are NOT deposits or other obligations of, or guaranteed by, Zions Bancorporation or its affiliates and MAY be subject to investment risks, including the possible loss of principal value of amount invested.

Featured in the May/June 2009 issue of Zions Bank’s Community magazine.

*Artwork from Felipe Skroski under Creative Commons license at Flickr.com.

In Part One of this series, Zions Bank Senior Vice President Paul Hansen offered an overview of some key considerations when planning for retirement. In Part Two, Hansen reviews IRAs, the building blocks of a retirement plan.

“After some Zions Bank clients expressed concerns about keeping IRAs open, I realized there was confusion out there,” Hansen says. “An IRA, or Individual Retirement Account, is a vehicle for saving. It’s not the investment itself. IRAs can be used to invest in stocks, bonds, mutual funds, Certificates of Deposit, money market accounts and other investment vehicles such as real estate. When investing in an IRA through a bank, clients can put their money in CDs and money market accounts covered by FDIC insurance for up to $250K.” (Check the FDIC website for details about insurance coverage limits as the coverage limits for certain types of accounts will change back to $100,000 at the end of 2009.)

“In the current economic climate, clients might want to think about CDs and money market accounts,” Hansen continues. “But they should definitely continue to save toward retirement whenever possible.”

Zions Bank offers a number of IRA plans, including three FDIC-insured IRA options. All plans are offered in both traditional and Roth flavors. Because it can be difficult to know which is best for one’s individual situation, Hansen provides some guidance.

The first consideration, Hansen says, is eligibility. Both types of IRAs have certain restrictions. Individuals who are 70.5 or older can only contribute to Roth IRAs, for example, but Roth plans have certain income caps that don’t apply to traditional IRAs.

The main difference between the two types of IRAs is how they’re taxed. Contributions made to traditional IRAs are eligible for a tax deduction when the contribution is made. Contributions to Roth IRAs don’t get the tax benefit when the money is put into the account. However, withdrawals from Roth IRAs aren’t taxed, whereas withdrawals from traditional IRAs are.

For individuals who are eligible for both types of IRA, Zions has outlined some guidelines:
• For investors who want a deduction now, a traditional IRA may be the way to go.
• Those who want tax-free earnings should probably consider a Roth IRA.
• If you expect your tax bracket to go down at retirement, a traditional IRA is probably best.
• Those whose tax bracket will remain the same or increase at retirement might try a Roth IRA.
• Traditional IRAs have required minimum distributions that kick in at 70.5. For those who don’t want mandatory withdrawals imposed at that age, a Roth IRA will be the better option.
• Individuals looking to lower the effect of estate taxes by reducing an estate should consider a Roth IRA.
• The further you are from retirement, the greater the advantage of choosing a Roth IRA.

If all this still sounds confusing, that’s probably because it’s hard to make blanket recommendations about investing for retirement. Some investors may even benefit from contributing to both kinds of IRAs. Hansen recommends sitting down with a financial planner to review both your current situation and your expectations for the future. Remember, your retirement plan should be as tailored to you as are your retirement dreams.

Please note: The preceding article is offered for informational purposes only, and should not be construed as tax advice or as pertaining to specific factual situations. Consult a tax adviser concerning your own needs and circumstances and to obtain any tax advice with respect to the topics discussed in the article.

Featured in the March/April 2009 issue of Zions Bank’s Community magazine.

*Artwork from Felipe Skroski under Creative Commons license at Flickr.com.

DREAMING OF RETIREMENT: PART ONE OF SIX
KEYSTONE IS HEALTH |

Even for those who enjoy working, thinking about retirement can be seductive. But understanding how to make the dream a reality can be daunting even at the best of times. And when the airwaves are full of sobering news about the economy, sometimes retirement starts to seem like an unattainable fantasy.

Paul Hansen, senior vice president of finance and profitability at Zions Bank, offers some practical advice about turning your retirement dream into reality.

The keystone for a successful retirement, according to Hansen, is thinking about health. Retirement planning requires consideration of one’s own health, the health of one’s loved ones, the health of the economy, the health of one’s retirement portfolio, and for business owners, the health of the business.

When news on the business pages is negative, Hansen says, clients tend to focus on the nation’s economy rather than their own. But many would do well to concentrate on the areas where they have control.

Some aspects of personal health are out of one’s control, of course. But in retirement planning, one’s current health status should always be taken into consideration, as well as its long-term outlook. Is longevity likely, given family history? Hansen says he can’t count the times he’s heard the sentence, “I never expected to live this long” from retired clients. If you outlive your own expectations, can your retirement plan handle it?

If you have a partner or spouse, you’ll need to know his or her answers as well. What is the current state of your partner’s health? What kind of longevity can he or she expect?

Another consideration is whether one has any permanent dependents, such as a disabled relative. Relationships with elderly parents and adult children also need to be taken into account. What is the situation for one’s parents and in-laws? Are they in good health? Is their retirement plan? Is anything about their financial situation as they age likely to impact yours?

Some of these questions also apply when considering one’s adult children. If, like many parents, you’ve offered your children the occasional financial helping hand even after their education was complete, are you prepared to scale back after retirement? Are they prepared for such a change?

For business owners, a key retirement question is what will happen to the business. Will you sell or liquidate? Are you hoping for a merger? Will the business be transferred to a relative?
Finally, there’s the question of one’s investment portfolio. Hansen recommends that his clients supplement their 401(k) and other employer-sponsored retirement plans with an IRA. “I tell them, ‘Start early and contribute often,’” he says.

Zions Bank offers both traditional and Roth IRAs. Investments in both types can be spread across asset classes to manage the risk inherent in today’s volatile economic climate. Beyond that, both types have different advantages. A Zions representative can review the options in relation to your situation. Your retirement plan should be as tailored to you as are your retirement dreams.

Featured in the January/February 2009 issue of Zions Bank’s Community magazine.

*Artwork from Felipe Skroski under Creative Commons license at Flickr.com.