It’s not on life support just yet, but it certainly finds itself in an increasingly precarious position, due to the numerous negative factors swirling around the financial world.

One of these factors is something you might not be aware of, given the furor here in the U.S. It’s happening half a world away over in Eastern Europe and is just beginning to get some attention now.

So pack your bags and I’ll fill you in…

Pain In Prague And Poland

In Eastern Europe, the economic problems are two-fold…

1.       The region is experiencing a similar downturn to the one in the U.S.

2.      Local currencies are enduring a significant slide against the euro.

For example, the FOREX exchanges in Prague (Czech Republic) and Warsaw (Poland) have hit multi-year lows. And so-called “toxic foreign currency options” have sent the Polish Zloty into a downward spiral.

So while on the surface, you may see that Eastern Europe has enjoyed strong growth over the past couple of years, scratch below it and you’ll find that this growth was fueled by credit.

Today, citizens in countries like Poland and Romania are losing their jobs and having trouble paying their loans. Sounds familiar, huh?

But just to make matters worse, many of the banks either lent money in euros or receive money from their parent banks in the same. So even if the loans are paid back, they’re worth as much as one-third less because of the falling currencies.

It Wasn’t Just Americans Sucked In By Cheap And Easy Money

We’ve heard a ton about how some American banks got carried away with the availability of easy credit and started dishing out money to practically anyone who asked for it.

But it’s a similar situation in Europe. Austrian, Swiss, German and Italian banks own a majority of banks that do business in Eastern Europe. And these foreign banks have lent boatloads of money to countries such as Poland and Romania.

Not a good predicament to be in, to say the least… not for anybody.

According to The Economist, Austria has lent $230 billion euros to the region, which is equal to about 80% of its GDP – a mind-blowing amount.

And the chickens are coming home to roost now, with Austria’s finance minister, Josef Proll quoted thus in Vienna’s Der Standard newspaper: “A failure of 10% would lead to a collapse of the Austrian financial sector.”

Nope… Not good at all.

The European Bank for Reconstruction and Development estimates that bad loans will make up 10% to 20% of total loans. And the fact that Eastern European countries have to repay – and presumably reborrow – $400 billion this year is a mighty tough number to meet in the tight credit market.

A recent Bloomberg article even floated the notion that big countries like Germany and France might be forced to bail out not just banks, but entire countries.

Because of this, it’s quite reasonable to imagine that if big European banks start falling apart as a result, we’ll experience the ripple effect in the U.S. And with the investor psyche already perilously fragile, quite frankly, our markets can’t suffer another systemic crisis without severe ramifications.

So what’s the solution?

If Eastern Europe Goes South, Head For The Exits

There are some who argue that Eastern Europe is fertile enough ground that foreign banks will do whatever it takes to ride out the storm. After all, those banks have generated meaningful profits in that neck of the woods in the past, and they’ll doubtlessly want to do so again when the smoke clears.

But while they’re probably right, it’s certainly worth monitoring this situation. If it gets worse, you can expect rapid deterioration in our markets as well as the contagion spreads. You’ll want to move your money to safe investment vehicles and fast.

The flight to safety could include assets like the U.S. dollar, which could benefit as Europe’s currencies head south. But this in itself is a risky bet, given its volatility.

As we’ve stated here several times over the past few weeks, we think gold investing is one of the best options at the moment. In addition to highlighting a lesser-publicized reason why gold could head even higher from here, we’ve also alerted you to a gold price indicator that can tip you off on when the metal could rise, plus reasons why you should invest in gold.

Source: The Global Economy: How The Credit-Crippled Europeans Could Sink Your 401k

This from Money Morning:

For the 50 million Americans with 401(k) plans – many of them close-to-retirement Baby Boomers – the heavy lifting is just beginning.

In the 12 months after the U.S. stock market hit its record peak in October 2007, more than $1 trillion worth of stock-market wealth held in 401(k)s and other “defined-contribution” plans was eviscerated, The Wall Street Journal reported. The lost wealth is more like $2 trillion if individual retirement accounts (IRAs) are taken into account.

For many, the pain will be especially acute. For instance, workers aged 55 to 64, who have been contributing to the same 401(k) plan for the past 20 years, have seen their the 401(k) account balance plunge by a staggering 25%-plus since the start of 2008, according to research by the Employee Benefit Research Institute. Since those figures don’t separate out new cash contributions to the plans, the statistics actually tend to drastically understate the actual level of losses, The Journal reported.

Given that many Americans were already trying to deal with major declines in the values of their homes – and given that thousands of households are dealing with, or are expecting, job losses – this eradication of their retirement savings is taking on a kind of “last straw” quality.

After all, any one of those three things alone  – falling housing prices, loss of incomes due to lost jobs or a retirement plan haircut – is tough enough to rebound from. But the combination of all three is the kind of triple-whammy that can put an entire economy out for the count.

“This is the biggest test that the 401(k) plan has seen to date, and it has failed,” Robyn Credico, head of defined-contribution consulting at Watson Wyatt Worldwide Inc. (WW), told The Journal. “We’ve put people close to retirement in a very challenging position.”

There are plenty of ways to react, ranging from indifference to outright panic. Neither extreme will prove productive. However, there are some options in between that will form the foundation of any sound retirement plan rebuilding strategy.

After reviewing a plethora of options, Money Morning offers you the three best ones.

Retirement Rescue Tip No. 1: Don’t Cash Out

Possibly the worst thing you could do to your retirement is cash in your 401(k) – a move that would level your finances come tax time, extend your pre-retirement career by a number of years, and/or reduce your income when you start retirement.

So let’s rule that out immediately. That will put you well ahead of others who didn’t resist this urge, or who were forced to make this unattractive choice due to extenuating circumstances.

In the last two months of 2008, requests to withdraw from retirement plans rose 59% from the same period in 2007.

Magnifying this mistake is the fact that the contributions participants have funneled into their retirement have steadily declined since July, HR consultancy firm Mercer Inc. reported after polling 1.2 million participants with employer-sponsored defined contribution retirement plans.

Luckily – for now – less than 1% of plan participants account for both these declines.

“What should sound the alarm with plan sponsors, however, is the growth trend, not the absolute figures. As most experts would agree, withdrawals from 401(k)-type retirement plans and reducing participant contributions to zero are two actions that are completely counter to preparing for retirement,” Eric Levy, Retirement Business Leader at Mercer, said of the firm’s poll. “This may point to the dire straits that a small-but-growing number of participants find themselves in where withdrawals and zero contribution rates are seen as a type of financial last resort.”

Levy raises the central issue: It’s less of a lack of faith that the markets will bounce back, and more of a basic need for money for daily expenditures.

That’s understandable, and excusable to a large degree. After all, you won’t be able to enjoy retirement if you lose your house in the process of putting away money for later.

But the bottom line is less money contributed now translates into less money you’ll have to enjoy life and meet your basic daily needs after you punch that company timecard for the last time.

Sometimes you have to take one step back before you can take two steps forward.

Retirement Rescue Tip No. 2: Balance and Rebalance

The phrase “rebalance your assets” sounds intimidating. But 401(k) managers and financial planners know their clients aren’t financial wizards.

They know a large portion of 401(k) participants don’t have the time or knowledge to actively manage their plan’s holdings. And they know investors have different tolerances for risk.

That’s why 401(k) plans have asset-allocation models designed to assess a participant’s risk tolerance, manage that risk and maximize returns by setting a percentage for each category of assets. Over time, these ratios can change as some assets surge in value, while others hold steady or even decline.

That, in turn, could skew your asset allocation. Assets that performed well could now comprise 20% of the portfolio’s value, instead of once accounting for 15%, if other asset categories tanked.

Levy says that many employers offer quarterly or semi-quarterly rebalancing programs, as well as some that rebalance automatically.

“Conceptually, you should be regularly looking at the asset allocation of your account relative to your age and risk tolerance,” Levy said. “And [you should be] looking to rebalance that at least on an annual basis if not more often.”

Retirement Rescue Tip No. 3: It’s a Marathon, Not a Foot Race

Since 1947, of the 11 times the quarter-over-quarter change in gross domestic product (GDP) was a minus 4% or more, the Dow Jones Industrial Average index was higher by an average of 25% one year later and 35% two years later.

This information especially applies to 401(k) participants. The reason: The more you invest when markets are down, the quicker you will recover the losses you sustained over the past two years.

Just take a look at the following chart.

“The latest projections suggest we’re right in line with historical norms, given that economists expect that the U.S. economy suffered a mind-numbing decline of 4.35% in the final quarter of last year,” says Money Morning Investment Director Keith Fitz-Gerald. “When everyone else believes the worst; that’s when you should be buying.”

For prospective retirees – those who watched as their 401(k) plans trip and fall right before the finish line to their working days – take heart: The markets will rebound. It’s just not clear when. While that may mean you have to stay in the race a little longer, consider this: You’ll be able to keep contributing to your retirement cache, magnifying your retirement war chest when that rebound does come.

For those 40 and under, this is possibly the biggest opportunity to build long-term wealth in your lifetime. Keep saving. And stay focused.

Source: Retirement Strategies: The Three Best Ways to Rescue Your 401(k)

Let’s look at a specific example. This is for my own parents, who turned 65 last year. (That puts them just before the Baby Boomers.) They live in a nice suburb outside of New York City, on the coast of Connecticut. Like many older people, they would like to stay in the house they have owned for about 20 years now, in the community they are accustomed to, and near the friends they have. It’s not so easy to start over when you’re over 65.

Even people who have been able to accumulate significant assets, pensions etc., might be a little nervous. Trying to depend, for the next 20 or even 30 years perhaps, on financial abstractions and government promises would be a little scary. I usually tell them that they should be scared! Or, at least don’t put too much faith in various Wall Street promises (and pensions are ultimately Wall Street promises too). You aren’t going to make a smooth 8% per year in your 401(k) just because some financial advisor told you so. But, I guess you’ve figured that out now. Anything can happen. Particularly as we are sort of in a depression right now. Owning a big house in a nice neighborhood is not cheap, even if it is 100% owned with no mortgage. The annual costs of a house look something like this:

Property tax: $8000 (and that could go up)
Insurance: $2000 (could be higher)
Maintenance: $2000 (could be higher)
Utilities (phone, internet, cable, electric, trash collection) per month: $200 or $2400/year.
Heating oil: $2000 per year (could be higher).

Total: $16,400. That is probably on the low side. So, let’s just budget it at $18,000.

Then, you’ve got a car and all the other expenses of living. And what happens when you get a little frail, and want living assistance?

Have you seen the prices for nursing homes?

It’s not that these burdens are unbearable. It’s rather that they are burdensome. Just house-related costs could chew up most of your Social Security check right there. And, if things really go to hell in the future, they might become unbearable. Who knows what things will look like in 20 years? Only your financal advisor knows for sure.

Let’s look at it from the financial side. Maybe you can get 3% of cashflow from a “safe” muni bond portfolio, or dividends from stocks. And, you have to take into account inflation … over the next twenty years. How do we “take into account” the unknowable? What happens if there’s not enough fifteen years from now, and I’m still alive? To get $18,000 of income would take $600,000 of muni bonds. And, muni bonds are looking kinda risky these days. Dividends from stocks might take more than $600,000, because you have to pay taxes on dividends. Stocks go up and down a lot too. Sickening.

Now, like I said, they’ve been living in the area for a while and have some good friends, who are about the same age and in similar circumstances.

So, here’s the plan:

You get together with your friends. You say: “We’re all retired now. I’ve got a big empty house. You do too I suppose. Maybe we can think of living together. That would help reduce our living expenses. Plus, it might be fun, and it would be a good way to keep an eye on each other. That can be important when you’re getting older.”

Everyone is repulsed at first, because we Americans are all taught that we have to live as far away from each other as possible. But, they remember that, when they were in college, they used to share houses, and it was kind of fun. Also, everyone is older now and a lot better behaved than when they were in college. And, it is true that it might be good to have someone keeping an eye on you.

So, everyone decides to move into one house, owned by the Owner. The people who move in, two other retired couples, are the Renters. The Renters pay the Owner $800 a month to rent a bedroom, and agree to pay 1/3 of the utility and heating bills. The Renters’ cost of living looks something like this:

Rent: $800 * 12 = $9600
Utilities: $100/month = $1200
Heat: $700

Total annual costs: $11,500.

Now, indeed renting turns out to be cheaper than owning the big house, even when the big house is fully paid for. They could sell their big houses if they wanted to. But, they are nervous about just selling the house they have owned for twenty years, and moving in with someone else. It might not work out. Let’s not burn any bridges. So, instead of selling their now-empty houses, they rent them out.

Rent: $3500 per month = $42,000 per year (typical, actually a little low). Heckuva lot cheaper than paying the mortgage on a million-dollar house. Just the thing for a Wall Streeter with a family that needs to downsize quickly. Real quickly. Utilities are paid for by the renters.

Costs:
Property tax: $8000
Maintenance: $3000 (higher with renters)
Insurance: $2000
Total: $13,000

Net cashflow: $42,000 – $13,000 = $29,000.

Now, they’re getting $29,000 in rent net of property expenses. Then, they pay their $11,500 it costs to live in the shared house.

$29,000 – $11,500 = $17,500.

Now, look at the renters:

Before: $18,000 per year of housing costs.

After: Housing and utilities are paid for, and an extra $17,500 per year of free cashflow, plus probably some tax benefits.

Wow, all of a sudden, you’re living for free, and getting paid too! You just created, out of thin air, the equivalent of a $1,200,000 muni bond portfolio. Maybe more, if you consider tax benefits (rental properties can charge depreciation.) And, you still own your house.

For the Owner, it looks like this:

House costs: $13,000
Utilities: $1200 (1/3)
Heat: $700 (1/3)
Total: $14,900

Rental Income: $800 * 2 * 12 = $19,200

Net cashflow: $19,200 – $14,900 = $4,300.

So, the Owner is also living for free! However, their cashflow is not as high as the Renters. That’s probably the way it should be, because the Renters will probably want a little extra incentive to move out of their house into someone else’s.

So, now where are we? All three couples are now living for free, and getting some extra cash on top of that. And, there are things you can do in a shared house, like splitting cooking duties. Instead of cooking every night for two, the cook can cook twice a week for six. That’s a lot easier, and would probably result in a more ambitious menu, and would resolve the question of how three people can cook in one kitchen. If the men are smart, they will encourage a little friendly competition among their wives, to “keep up the pace” for their two dinners a week. You can finally use that formal dining room every day. Then, everyone has a house’s worth of furnishings. The antiques, boutiquey stuff, art and heirlooms, and the grand piano, all goes into the house where everyone is living. The more generic, replaceable stuff can go into the houses that are being rented out. Maybe you can charge an extra $500 a month for a furnished house. $500 a month is $6000 per year. That’s another $200,000 muni bond portfolio-equivalent, that you created out of some used furniture. You would have had to save $400,000 before income taxes, to get a $200,000 portfolio after taxes.

After a while, in a shared house, there is always the issue of who does what house chores, and do they do it adequately, and so forth. The easy way to solve this problem is to get a housekeeper to come in one day a week, and do the vacuuming, laundry, bathrooms and all that. It’s $100 a week, or $5,200 a year, or $1,735 per couple per year. Covered by their extra cashflow. Over time, people are over 70 and a little frail. Maybe they would like a little more help with shopping or even cooking, or they are no longer able to drive safely by themselves.

So, they get a live-in full-time housekeeper. The housekeeper lives in the fourth bedroom. The housekeeper gets room and board and use of a car, plus $1,000 a month in salary. Not a bad deal for a housekeeper. That’s $12,000 per year or $4,000 per couple. That is also within their net cashflow. So, now everyone has their housing and utilities and a live-in housekeeper paid for. Make it $2,000 a month and you could get a registered nurse, probably. Now you’ve got a private nursing home.

Being older with lots of free time, it would probably be good to get outside for some light exercise. The house sits on two acres, of which perhaps there is one full acre of lawn. Instead of growing grass, let’s grow some vegetables. This is prime farm country, or it was in the colonial days. You can grow a lot of vegetables on a full acre. Heck, you can grow a lot of vegetables on a tenth of an acre. A tenth of an acre is 4,356 square feet, or 43 feet by 100 feet. Not a small garden, that. So, you drop some seeds in the ground, and have fresh vegetables all summer. You even do some canning and put some away for winter. It’s all organic, you get some exercise, and no more big-ticket trips to Whole Foods.

So, now, instead of paying out $18,000 a year in housing expenses, you’re living for free, with your friends, with a live-in housekeeper, with some extra cashflow on top of that, and a lot of your food costs are covered as well. What is there to be worried about? Pass the 401(k) on to your kids. Don’t worry about the corporate pension. Consider the Social Security check to be your entertainment budget. If there’s inflation, just raise your rents.

And all it took was a little cooperation among friends, to make better use of what they already own.

Source: Benefit from Being a Baby Boomer

This from Investment U:

Investment legend John Templeton insisted that everyone’s long-term investment goal should be the same: maximum total return after taxes.

In my experience, investors spend plenty of time thinking about risk and return, but not enough about taxes. That’s unfortunate. Especially since – unlike the stock market, interest rates or inflation – taxes are controllable.

Yet too many investors are surrendering far more to the taxman than they should. A Vanguard study, for example, found that the typical investor is giving up 2% a year to the IRS.

That’s nearly 20% of the long-term return of the S&P 500. How can you stop this and still remain a law-abiding, civic-minded individual?

It starts with tax-managing your investment portfolio…

Tax-Managing Your Investment Portfolio – 5 Basic Steps

Here are the five basic steps for tax-managing your investment portfolio:

• 1) Use your retirement account for short-term activity. If you like to trade for short-term profits, do it in your qualified retirement plan. That way all those short-term gains compound tax-deferred. (The downside in a bad market, however, is that losses in a retirement account are not tax deductible.)
• 2) Minimize turnover in your non-retirement accounts. Realizing gains on investments held less than a year means subjecting yourself to short-term capital gains taxes as high as 35%, depending on your tax bracket. As Warren Buffett once said “the capital gains tax is not a tax on capital gains, it’s a tax on transactions.” Hold winners for at least a year, if possible. If you do, you’ll qualify for long-term capital gains treatment at the maximum rate of only 15%.
• 3) Offset capital gains with capital losses. The IRS allows you to offset all of your realized capital gains with realized capital losses. And you can take up to $3,000 in additional losses against earned income. If you want to take the deduction for 2008, you need to sell your losers by the end of this month.
• 4) Reduce your taxes on interest income. Use your IRA, pension, 401(k) or other tax-deferred account to own corporate and Treasury bonds (since interest income is taxed at the same rate as earned income) and real estate investment trusts (since REIT dividends are taxed the same way).
• 5) Cut your management fees. If you invest in mutual funds, use index funds rather than actively-managed funds in your non-retirement accounts. Index funds tend to be highly tax-efficient because changes to the index are rare. Managed funds often have high turnover and Federal law requires them to distribute at least 98% of realized capital gains each year. You can get hit with a big capital gains distribution even when you haven’t sold a share and even if the fund is down for the year. That hurts on April 15.

Take these steps and you will substantially lessen the government’s tax bite on your investment portfolio. The few remaining choices are simple ones like owning tax-free rather than taxable bonds if you reside in a high-tax state like New York or California. (That is especially true today, since tax-free bonds are yielding more than Treasuries.)

While tax-managing your investment portfolio, if you’re looking to reduce your taxes further:

• Buy business equipment this month
• Pre-pay businesses expenses for 2009
• Fully fund your IRA, 401(k) or other retirement accounts.

Tax-Managing Your Investment Portfolio – Fine Art Donations

Consider investing in fine art and donating it to a charity to tax-manage your investment portfolio. The 1995 Tax Act allows you to donate to any IRS-approved charity works of art at their fair market value, not at their cost basis. Moreover, you can deduct the charitable gift’s fair market value on your return without being subject to the dreaded alternative minimum tax.

This is not just for fat cats, by the way. You can invest in art with just a few thousand dollars. (For more information, contact Mike Kuschman, president of Fine Arts Ltd, at 800.229.4322 or 407.702.6638.)

Too many investors are oblivious to the tax ramifications of their investment moves. Using the government tax breaks and tax-managing your investment portfolio can change that.

Tax savings should never be your sole consideration, however. In December 1996, for example, I sold my shares of Best Buy (NYSE:BBY) at a small loss, solely to offset some capital gains, then watched in horror as the stock rose nearly 30-fold over the next few years. (I still consider that one of my most bone-headed investment moves.)

Managing taxes is essential. It should be a priority. But it is not your most important one. Risk and return are your primary concerns. Taxes and expenses come next.

Focus on these four factors and your long-term investment success is virtually assured.

Source: Tax-Managing Your Investment Portfolio: There’s Still Time to Cut Your 2008 Taxes

This from Whiskey & Gunpowder:

There has never been a better time than right now to buy stocks. I know what you’re thinking — it sounds strange considering the enormous volatility in the market. But, I’m not talking about just any old stocks. I’m talking about stocks that produce real income.

In these manic times, you need to keep one important idea in mind when stock shopping: dividend yields. If there is one proven way to make money during any market condition, it is investing in companies that offer low, growing dividends. In fact, 97% of all gains in the S&P 500 over the last 80 years have come from reinvested dividends, according to one study.

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The Deficit Time Bomb

Well, Election Day has come and gone…and our deficits are still there…and growing…

Those deficits are going to wreak more havoc on the economy and individual savings than can be properly imagined.

We’re still offering solutions in our “Personal Bailout Bundle” and it’s still exclusive till Dec 21. Don’t miss out. Just click here to read more.

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If you are sitting on a huge pile of cash in a nice big home that you own outright, go ahead and reinvest your dividends. But if you worry about your bills, dream about helping your kids out more, or just wish you could eat dinner out a few times a week, those dividends can be the best solution.

Take a step back and analyze the situation. When you invest in a dividend-paying stock, you have the option to put those payments back into more stock or cash those checks to boost your lifestyle.

But there is a third option that most don’t even know about…

DRIPing Money into Your Retirement Savings

Many dividend-paying companies offer Dividend Reinvestment Plans, or DRIPs. These plans allow you to “set it and forget it.” Just buy some shares, set up the plan, and let the company do all the hard work. If all things go well, your money — and your stake in the company — will increase and be waiting for you when you retire.

Most investors, however, have no idea that they are allowed to split their investment. Instead of putting all of your shares in the DRIP, you can actually allocate some to pay you via dividend checks and others reinvested. That gives you both the spending power of dividends now and a savings element to work for you until you need it.

Think it can’t get any better? Well, many companies make their DRIPs even more enticing.

Certain companies allow you to both receive dividend checks in the mail and buy more shares for a discount. If you are enrolled in these companies’ DRIPs, your dividends will actually buy you up to 10% more stock every payment.

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The End of Cheap Oil

You wouldn’t think so. After all, oil prices just plummeted…

But the fundamentals are clear as day. Oil is destined to get a lot more expensive.

It’s going to change life in the U.S. and the world…forever…but you can protect yourself and prosper… Click here to take advantage of oil’s temporarily lower prices.

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Matched Gains Without Working a Day for the Company

Here’s how it works:

You want to invest in Company A. That company wants you to reinvest your dividends back into more shares. So, they offer — as a benefit for signing up for their DRIP — a market discount on every purchase. Company A will take your shares and sign you up for this plan. When the dividends come out, they’ll reinvest them by buying more shares for you at a 10% discount to the market price.

It’s as if the company was matching 10% of your investment just like an employer-based 401(k). Here’s the best part: Most companies will let you split your shares into half “pay now” and half “reinvest for later.” So you are collecting current income from half your dividends, while saving for your retirement through an employer-like “matched gains” program with the other half.

From your perspective, it’s exactly like working for the company without ever lifting a finger. You are basically treated as a long-term employee. Better yet, at the end of the day, you still own all of your shares. And shares of companies that offer consistent dividends and DRIPs typically increase in value over a few years. Even in this market.

And you can do this with as many different companies as you want.

There are already over 1,000 DRIPs, most of which allow you to split your shares, and a few hundred of these “matched gains” retirement plans. Many more are jumping on this bandwagon.

It benefits you by giving you current income as well as retirement savings, and it benefits them by stabilizing their share prices.

Who Cares What the Shares Cost?

Of course, you don’t have to do any of this. You can simply invest in a dividend payer and just take your paychecks for life. That’s fine. Either way, you’ll certainly ease your stresses and strains while the economy is floundering.

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Get Gold Cheap… Before It Takes Off Again

Gold is giving you another chance to get in for the inevitable ride up at a bargain.

Here’s how to get it at a discount and multiply those gains.

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Income investing gives you options like these that “buy low, sell high” strategies don’t. Perhaps most importantly, income investors benefit from a completely different outlook on the market. They are not worried about share prices. They don’t even mind when prices drop. It just allows them buy more stock.

The most important focus for these investors is the dividend. As long as a company pays its dividend, especially if it continues to grow, the investor is usually happy.

Investing like this is much easier than trying to time the market and worrying about the economy. It actually solves both problems. It gives you a two-pronged attack on today’s hectic market.

Source: The Best Secret Savings Account

These problems should be stated in financial reports. But sometimes they are hidden in plain sight.  A bit of dubious padding in pension plan earnings projections can neatly camouflage millions in shortfall.

By the way—even if you are not buying dozens of stocks for their dividends, this is something good to know. It will help you evaluate those slick plans that brokers, bankers and insurance salesmen hold out to you when you take out life insurance, buy an annuity, set up a 401(k) or do any long-term planning yourself.

Let’s start with a choice: Which would you rather have? $311.80 today to put in a 20-year bond that pays 6% a year? Or would you rather have $1,000 on Nov. 13, 2028?

They are the same. The $1000 is the “future value” of taking $311 today and investing it for 6% per annum for 20 years.

Or to reverse the order, assuming 6% a year return, $214 is the “present value” of $1000 in 2028.

And the 6% assumption? That is the “discount rate.”

The problem with Lockheed Martin and several other companies is that the potential for big pension shortfalls is craftily understated in the discount rates they use in their projections. Lockheed has been using a discount rate of 7.5% for its pension plan returns.

Is that reasonable? No way! Nor should you accept a rate like that in an annuity or life insurance plan’s projections.

First of all, a pension plan should be conservative. It should hold bonds along with blue-chip stocks, and bonds do not pay anything near 7.5% unless they are of poor credit quality and highly risky.

For reality, we’ll go to the guidelines Charles Schwab has published—a 20-year average return for large-cap stocks is 8.2%, and for bonds it’s 4%. If the pension fund is half stocks and half bonds, a reasonable discount rate would be 6.1%. In truth, the balance for pension funds today according to Watson Wyatt and several other firms is 60% stocks. With a 60-40 ratio (bonds to stocks), the discount rate should be 6.5%.

Jiggling with this number makes a huge difference. A million dollars worth of obligation in 20 years can be fully covered with $235,000 in the pension plan today if it really can average a 7.5% return. But if the proper discount rate is only 6.5%, then the fund should have $283,000 in it. That’s 20% more money.

On top of this, many pension fund managers have been switching to more bonds in the past year. If the ratio turns back to 60% bonds rather than 60% stocks, the discount rate should fall to 5.7%, and Lockheed’s pension fund would need 40% more money in it today than it would at a 7.5% discount rate. Ditto any other companies using high discount rates.

This isn’t hard to check. It’s all in a company’s annual report, and often in the quarterly reports. If a company says that it needs to add to its pension fund, or is barely covered, take a second look at the discount rate it is using to be sure it is stating the full measure of the problem.

And you can tell your broker, banker, and insurance salesman to use a reasonable rate in his projections the next time you’re doing some financial planning, too.

Source: Pension Problems Part II

This from The Sovereign Society:

I urge you to pay close attention because this development could impact your future retirement more than anything I have encountered in the last 20 years.

The government has already turned your banker into a federal agent who can confiscate your assets without warning or cause.

This is why you MUST consider getting at least part of your retirement assets out of the country while you still have the opportunity. Very soon it may be too late.

If you’ve read my articles over the years, you know I’m not a wily reactionary. Nor do I try to scare my readers with my articles. But honestly, today I need to raise a red flag because frankly, this is serious.

I’m more concerned about the markets now than I have been at any other time in my 20 years in the business. And whether you agree that this could be the perfect financial storm or not, it’s time to acknowledge the steps our government is taking to deal with this mess.

Right now, they’re wracking their brains to come up with short-term solutions for this mess. But long-term, the consequences of their actions could have a very serious impact on your retirement savings.

Devil in the Details of Paulson’s Plan

As the saying goes ‘the devil is in the details.’ Well, nothing could be truer for Paulson’s new TARP bailout plan. The following text is buried deep within the bill passed recently by congress:

NECESSARY ACTIONS. -The Secretary is authorized to take such actions, as the Secretary deems necessary to carry out the authorities in this Act, including, without limitation, the following:

Designating financial institutions as financial agents of the Federal Government, and such institutions shall perform all such reasonable duties related to this Act as financial agents of the Federal Government as may be required.

Broad sweeping authority to do whatever they want to do! “Financial agents of the Federal Government,” what does this mean to you and your retirement plan? Well here are a few potential scenarios…

Let’s say foreigners stop buying treasury bonds because they become even more nervous about the uncertainty in our banking system. Face it, we can’t survive without foreigners continually buying up treasuries. If suddenly they stopped buying, the government would have to do something to finance the debt.

Panic Scenario # 1 – The government tells your banker to purchase U.S. Treasuries with 50% of your retirement plan, or worse. (How about 100%?)

But that doesn’t work as well as they want, so they have to figure something else out…

Panic Scenario #2 – The government tells your banker to stop any transfers outside of the U.S., No more offshore accounts! (Highly likely during an Obama presidency.)

Things continue to go downhill and they become even more and more desperate…

Panic Scenario #3 – The government tells your banker to confiscate all gold in retirement plans for the good of the country! (This has already occurred once in American history.)

And finally the “Nuclear Option” we get a president who decides the right thing to do is ‘redistribute’ the wealth…

Panic Scenario #4 (worst case!) – The government tells your banker to confiscate all retirement plans over US$250,000 so we can redistribute the wealth! (But don’t worry we are going to have universal health care and they will take care of us so you don’t need it anyway.)

With a stroke of the legislative pen and passage of the bailout bill, all these nightmare scenarios could be very real possibilities. As government agents, the banks (including yours) will have no means to protect your interests against aggressive ‘redistribution’ or the bold new plans of a welfare state.

As a result, this could be one of the last opportunities you ever get to take urgent action now; before your retirement plan is in jeopardy.

How to Take Your Plan Offshore

There are basically two types of retirement plans, Qualified and Non-Qualified. Non-Qualified include IRAs, SEPs and Keogh’s. Qualified plans cover all of the rest and are handled in a slightly different manner.

IRAs require a U.S. Custodian, so this becomes your biggest challenge. There are very few custodians who allow you to totally self-direct your account including using non-U.S. investments and taking it offshore.

If you want to take your IRA or pension plan offshore you must use a totally flexible self-directed custodian who will allow you to take your account offshore. To find out whether they can help, just ask them - “Can I take my plan offshore?”

So how do you take your plan offshore? The following methods are allowed: A direct purchase of non-U.S. real estate, a foreign bank account, a non-U.S. annuity, a foreign corporation or in some cases even direct investment into a non-US investment.

There are a couple of other custodians who will allow you to use one or more of these options, but I am only aware of one company who allows all of them. This may be important if you want to use several different methods of transfer, or if you want to make multiple kinds of investments through one custodian to keep things simple.

Qualified Plans require a U.S.-based administrator and demand “the indicia of ownership” remain within the United States. These plans are simpler in some cases and more complex in others to deal with than an IRA. I have reviewed hundreds of plans and the language within the plan is critical, as well as your plan administrator.

In my last article for the A-Letter I mentioned a client whose administrator told them they couldn’t invest in property offshore despite the rules laid out in the plan’s language. After a good deal of back and forth on my part with the trustee and record keeper, I was finally able to convince them to allow the investment.

How to Configure Your Offshore Retirement Plan

In both cases, you want to have a foreign bank account in your retirement plan if it is allowed. I am currently aware of three banks, which allow Americans to open retirement accounts with them. You would work with your banker in developing an investment strategy using their expertise and services.

The bottom line is that you need someone qualified to review your plan document and to assist you in structuring the investment in a compliant manner.

Timing doesn’t allow me to discuss in much greater detail the specifics of taking your plan offshore. For now you need to be aware that you can do this regardless of what you have been told. And I am more convinced than ever that there isn’t much time left to take advantage of this incredible opportunity.

Source: Your Banker Has Been Turned Into a Federal Agent With Potentially Devastating Consequences!