By Susan E. Campbell<\/p>\n
Caution: The fiscal cliff ahead is going to put short-term pressure on the investment markets, even if the cliff turns out to be more of a slope.<\/p>\n
The term “fiscal cliff” is not new, but was popularized in the financial vernacular since February, when Federal Reserve Chairman Ben Bernanke told the House Financial Services Committee that “a massive fiscal cliff of large spending cuts and tax increases” would occur this Jan. 1.
\n“It comes down to expiring Bush administration tax cuts and a debt ceiling that must be raised,” said Daniel P. Hazewski,CU, ChFC, CFP, founder of Legacy Planning Partners. “That would take 3.5 percent out of the gross domestic product, urging a recession.” Hazewski, a veteran financial planner, said that the immediate effect will be “incredible volatility in all the markets, particularly stocks.”<\/p>\n
Markets are always volatile to one degree or another. But Hazewski believes “at least temporarily, stocks could lose 15 to 20 percent of value” if the cliff turns out to be real. “Even increased tax brackets on the wealthiest individuals can potentially drive down prices short-term,” he said.<\/p>\n
To be prepared, retirees should have plenty of cash in their retirement accounts to live on, rather than sell securities positions into a falling market.<\/p>\n
“Retirees need to go into 2013 with enough cash to get through the turmoil for one year,” he said. “Otherwise the will never recoup the losses in their retirement accounts.”<\/p>\n
Market swings provide opportunity for near-retirees to buy in “at the dips,” he said. For example, if getting a lump sum distribution from a 401(k) plan soon, do not invest it all at once.<\/p>\n
“Dollar-cost average, combined with a little market timing,” Hazewski said. “Have a look at six-month and one-year cycles and trends and determine, is that market headed upward or downward.”<\/p>\n
Dollar-cost averaging involves buying regularly in smaller lots because one “never knows the bottom-bottom.”<\/p>\n
“We never know when is the exact right time to get back into the market, so the tried-and-true rebalancing strategy is to allocate a certain percentage to one asset and another percentage to another asset, scoop off the gains, and buy at the lows.”<\/p>\n
Today’s retirees need to be smarter and a little more conservative and nimble than in the past, which means holding a core position and doing some trading with the rest, he said. Year-end if always the time to analyze there the growth and loss is in any investment portfolio.<\/p>\n
“If your $10,000 investment is now worth $15,000, sell $5,000 and put the proceeds in something more stable,” said Hazewski. “It’s common sense that if the market is volatile, be more cautious and take profits while they are there.”<\/p>\n
He recommends U.S. corporate bonds now, but not U.S. Treasury securities. He also likes international corporate and government bonds, especially those issued by emerging markets that “have a better default rate than the U.S.”<\/p>\n
“Emerging countries pay their bills,” he said.<\/p>\n
If experiencing portfolio losses, sell those securities to offset this year’s gains. He said to simultaneously buy a similar stock or an index for that stock. Capital losses accumulate to reduce taxable income next year and the year after, which is a smart idea if tax rates go up.<\/p>\n
“However, it doesn’t make sense to put yourself in a panic over next year’s tax brackets, because we never know how they will change,” said Hazewski.<\/p>\n
“The main thing is to continue with sound financial strategies,” he said. “Harvest losses. Take the maximum tax deductions. But don’t do all your planning based on taxes.”<\/p>\n
The primary concern of retirees today is that they will outlive their investments. Hazewski said people put themselves at risk when they panic and take a big hit.<\/p>\n
He said the rule of thumb is to withdraw no more than four and a half percent of retirement assets each year to cover living expenses.<\/p>\n
Another major concern is their health.<\/p>\n
“Everything a retiree has ever worked for can be lost on medical bills,” Hazewski said. “It is not uncommon that when one spouse gets sick for the other spouse to be left at home impoverished.”<\/p>\n
Hazewski is authoring a new book that examines a retiree’s last lifestage from a financial perspective.<\/p>\n
“The book is a series of vignettes of clients over the years and what they have gone through,” he said. “It covers things we wish we knew that our parents couldn’t tell us about how to be better prepared for those final years.”<\/p>\n
Hazewski and his associates are located at 510 Glen St. in Glens Falls. For more information, visit www.legacyplanningpartners.com or call 798-6688.<\/p>\n","protected":false},"excerpt":{"rendered":"
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