It is the perfect time to reassess your retirement investment strategy based on your age and goals despite the the volatility we’ve seen in the stock market the past few years. The following article outlines why.

Make A Plan For The Long Haul

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Many of our parents and their parents never faced the question of how to invest their retirement savings. Dad and/or Mom might have had a secure pension, so they probably didn’t have to worry about the stock market. But pensions are fading away. Today’s workers are among the first to be forced not only to decide how much money to put away but also where to invest it.

Nor is “retirement-savings management” likely to be something you learned in school. With little financial education, the typical American worker must now make decisions that would have been left to a licensed professional just a few decades ago. Is it any wonder we are saving too little and often picking the wrong investments?

Not that the pros are infallible either. The Congressional Budget Office estimated in October that private pension funds had lost 15 percent of their value over the previous year, and even government pension plans showed signs of potentially being underfunded. But when it comes to retirement plans in which the worker controls the investment, the picture was worse. The Urban Institute found that 401(k)s and IRAs fell 40 percent in value from September 2007 to March 2009.

Stocks don’t seem like a good idea when your 401(k) statement only reminds you that you could have had one heck of a vacation if you hadn’t bothered chasing employers’ matching contributions or IRA tax deductions. But it remains more of a risk not to put at least some of your retirement money in the stock market. Stocks are pieces of ownership of a company, and compared with bonds (which are loans to a company), they have greater potential for growth. Of course, they also carry greater risk. But over time the returns on stocks tend to even out remarkably and easily surpass those of bonds, despite the latter’s greater stability.

Wharton economist Jeremy Siegel looked at all the possible stock-market returns for the two centuries ending in 2001. He found that stocks are very volatile, but only in the short term. In any one year, their returns have varied from 66 percent gains to 38.6 percent losses. But if you invested in stocks for five years at any time in the previous 200 years, the possible outcomes would have narrowed from a 26.7 percent annualized gain to an 11 percent loss.

The longer the time frame, Seigel found, the more sense stocks make. Over any 30 years, stocks always made money. It might have been as little as 2.6 percent annually or as much as 10.6 percent. But that was generally better than bonds, which gained only up to 7.4 percent in their best 30-year period and lost 2 percent in their worst.

Probably the biggest tragedy in this financial crisis is that some people in or near retirement saw a substantial chunk of their life savings vanish as the stock market sank. Of course, people at that stage of life shouldn’t have the bulk of their savings in stocks. As you get closer to retirement, it’s smart to move a greater portion of your assets into more stable investments, such as bond mutual funds, money-market funds, or life-cycle funds (sometimes called target-date retirement funds), which automatically shift assets to less risky types of investments over time.

The second-biggest tragedy involves all of the young people now terrified of stocks-just as many of their counterparts were after the Great Depression. That fear is understandable, says Zac Bissonnette, who writes for AOL Money & Finance and the Daily Beast Web site. “No matter what the statistics say about usual stock-market returns, this generation has never had them,” he observes. “If I’m 20 or 30, that hasn’t been my experience.”

What this all means is that many people are investing in a way that is exactly the opposite of what they should be doing. Some young people are being too timid, and some older folks too bold. According to the Employee Benefit Research Institute (EBRI), from January to March of this year, 401(k) retirement accounts owned by 25- to 35-year-olds lost only 4 to 5 percent, but those owned by 55- to 64-year-old workers lost between 6 and 11 percent. In other words, many young people who should have their money in risky assets are trying to play it safe. And many of those near retirement might be taking more chances than they should.

Too many investors also move their money around based on their emotions and what they predict the stock market is going to do in the short term. As a result, they often end up buying after the market has gone up and selling after it has taken a tumble. By studying when money flows in and out of mutual funds, Dalbar, a financial-research firm in Boston, has shown that investors’ best intentions often end up backfiring. In 2008 the S&P 500 lost a staggering 37.7 percent. Employing all kinds of hunches, schemes, and tips, the average stock fund investor managed to do even worse, losing 41.6 percent.

But there is hope. Dalbar found that one type of investor beat the average investor by more than 90 percent by using the familiar investing strategy called dollar-cost averaging. Here’s how it works: You put the same amount in your retirement account each month no matter what. That way if the Dow is very low, at, say, 7,000, you’ll end up with twice as many shares as when it’s very high, like 14,000. The slow and steady investor will usually beat everyone, but even that can take some nerve in times like these.

Of course, there is no cookie-cutter formula for retirement investing. How you should invest your 401(k) or IRA money depends on, among other things, how close you are to retirement.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results. 

As retirement changes, so must your investment strategy. Here’s how to get it right.

Investing strategies for retirement

by Michael Sivy, MONEY Magazine

You’ve probably given a lot of thought to what your dream retirement will look like. But here’s what you really need to think about: How are you going to pay for it?

Time for some quick math. For starters, let’s figure you’ll need annual income for basic living expenses of $45,000 or so on top of a combined Social Security and pension benefit of $25,000. And let’s plug in another $5,000 a year for the rewards you so richly deserve after a long career — you know, Europe one year, a killer home theater system the next. And oh, there’s that 1965 Corvette Sting Ray you’ve coveted since you were a teenager.

Add it all up and you need, gulp, about $1.2 million. Before you reach for the anti-anxiety pills, take a deep breath. Truth is, even as corporate and government largesse decline, you’ve got more tools at your disposal than ever to pull it off.

This story lays out a three-part strategy for getting there: You’re going to invest differently (read: more aggressively); you’re going to tap other assets, including that incredibly valuable one called your brain; and you’re going to stay flexible — cutting back when times (read: the markets) are tough, spending a bit more when they’re flush — just as you have all your adult life.

No false promises here: To live the dream retirement, you need to get real.

Harness the power of stocks

Your first step in turning your retirement vision into reality is to invest more aggressively. The accepted wisdom of subtracting your age from 100 and investing that percentage of your portfolio in stocks may have cut it for the “Leave It to Beaver” crowd. But in a “Desperate Housewives” world — where you could easily spend 30 years or more in retirement — you need the growth power of stocks to bulk up your savings and make sure your money lasts a lifetime.

Many investment firms have yet to factor this new reality into their investing strategies, but some are beginning to do so. In the retirement portfolios it recommends for investors in their forties, T. Rowe Price now devotes more than 80 percent of assets to stocks. And it stashes 55 percent of assets in stocks in its funds designed for people in their sixties who are retiring today.

Relying that much on stocks may seem risky. But it’s actually more prudent than a timid approach. If the market turns in just average performance over the long sweep of a career and retirement combined, a more aggressive approach not only delivers a larger retirement stash by the time you’re ready to retire but also lets you squeeze a couple of extra years of income from your portfolio. The results will be even better for the aggressive portfolio if the market performs anything like it has over the past 20 years.

Ah, but what if the markets perform poorly? Well, the more aggressive strategy comes out ahead there too. True, it falls behind slightly during the working years. But once withdrawals begin, stocks’ superior growth potential eventually wins out, with the result that the aggressive portfolio lasts five more years than its conservative counterpart.

The reason is that over the long haul, stocks provide more inflation protection than bonds, which increases the longevity of your savings and helps you maintain your standard of living. Of course, you don’t want to overdo it.  

Tap other assets

Chances are, though, smarter investing alone won’t cover the full tab. You’re going to have to turn to other assets.

One of the biggest is your earning power. Whether for enjoyment or for the cash, most people say they plan to work in some capacity after they retire. Those earnings, whether from a new retirement career, part-time work or even a new business, can add up to a sizable asset.

Let’s say, for example, a married couple both retire from their career jobs at 62 but work part time over the next 10 years, earning $25,000 a year each. That annual income would be the equivalent of having an extra $300,000 or more tucked away in savings at retirement. (Of course, working may complicate the issue of when to take Social Security.)

Taking a job after retirement has other advantages too. With a regular paycheck, you don’t have to draw as much from your investments for living expenses, which gives your savings a chance to grow and lowers the risk of your portfolio running dry. You may also be able to get employer-paid medical insurance for yourself and perhaps your spouse — an attractive perk, especially if you’re retiring early and must wait several years for Medicare to kick in.

Another major asset that can greatly improve your retirement prospects is your home. With house prices up more than 50 percent over the past five years alone, you may be sitting on a home-equity cushion worth more than $100,000.

Your home probably isn’t the first asset you’ll want to tap, but it’s good to know that reserve is there, and that you can get to it in a variety of ways: Trading down to less expensive digs, borrowing with a home-equity line of credit or taking out a reverse mortgage that will let you stay in your home even as you collect monthly payments for life.

Adopt a flexible spending plan

After you’ve gotten the most out of the assets you own, you must turn your attention to the other key tool at your disposal: managing your spending. Once you begin tapping your portfolio at retirement, keeping a flexible attitude about spending is the single most effective thing you can do to stay on track toward your retirement dream.

For example, financial advisers recommend that when you retire you limit your initial withdrawal to 4 percent of your portfolio’s value, then increase that dollar amount annually for inflation so you don’t run out of money. That 4 percent isn’t a guess; in simulations that put portfolios through thousands of different market scenarios, 4 percent is the amount that provides reasonable assurance your savings will last at least 30 years.

But this sort of analysis doesn’t account for the fact that in real life you’re not locked into a fixed withdrawal rate. You can make adjustments.

And, indeed, assuming you’re amenable to some fine-tuning — spending more when your portfolio has had a few good years and reducing your spending by 5 to 10 percent when your investments perform poorly — you may be able to increase your withdrawal rate to 4.5 percent or even 5 percent without significantly raising the risk of running out of money.

Like the rest of life, retirement doesn’t come with guarantees. But if you approach your planning with the determination to save, the discipline to stick to a sound investment strategy and the resolve to remain flexible, you’ll have given yourself a great shot at living your dream retirement.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

In today’s economy, people of all ages and walks of life are experiencing new unforeseen struggles, and retired Americans are no exception. Luckily, there are several things a retiree can do to lower their tax liability and save a little bit of cash.

Top 10 Tax Tips for Retirees

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To help some of our retired readers wanting to save, we have compiled the following list of 10 tax tips for retirees. 

1. Increased standard deduction

If you are over the age of 65, or have gone blind before the end of the year, then you are entitled to a higher standard deduction. But remember, if you take the standard deduction you will not be able to itemize your return.  

2. Social security taxes

Whether you owe taxes on your social security benefits depends entirely on your income level, and income types. If social security benefits have been your only form of income and will continue to be, you will most likely not need to pay taxes or file a Federal income tax return. However, before deciding to pay income taxes or not, it is probably a good idea to get a second opinion from a tax professional. 

3. Required minimum distribution (RMD)

Retirees who are 70 1/2 or older in 2009 get the added bonus of the new tax law which has relaxed the mandatory minimum withdrawal from IRA’s. Until now, retired individuals had no choice but to take a yearly mandatory withdrawal from their IRA, even if they did not need it. However there is a new one-time-only law that takes away this requirement for the 2009 tax year, which is expected to protect retirees from being forced to lock-in large investment losses from the past year.  

4. Roth IRA benefits

Unlike taxable payouts from traditional IRAs, a Roth IRA is tax-free, making it especially useful if you have no other source of income. You can even switch a traditional IRA to a Roth IRA in what is known as a Roth conversion. You will have to pay taxes the year you convert, but it could be beneficial to you in the long run. If you are seriously considering a Roth conversion, then I highly recommend you speak with a qualified tax or accounting professional. They can help you weigh the pros and cons of the conversion. 

5. Volunteering deductions

If you do any volunteer work in your free time then you may be able to deduct any out-of-pocket expenses you incur. They must all be directly related to your volunteer activity, and the organization you volunteer for must be a qualified organization approved by the IRS. 

6. Do not forget your winnings

Some retired taxpayers get in to trouble with the IRS for having too much fun at the casino without telling Uncle Sam. Do not forget that gambling winnings are forms of taxable income. You will need to pay taxes on the winnings even if your next bet is a big loser.  

7. Reverse mortgages

Retired homeowners may consider the tax-free option of a reverse mortgage. With a reverse mortgage, your lender sends you money as a loan against the available equity in your home. The loan grows larger and larger as you keep getting cash advances. This will continue to be the case if you make no repayments, and interest is added to the loan balance. Generally, a reverse mortgage does not need to be paid back until the homeowner dies, sells the home or permanently moves out of the home, as you are only borrowing against the built-up equity. To qualify, a homeowner generally must be at least 62 years of age, own his or her home, and the home must have a very low mortgage balance or be owned free and clear. 

8. Medical expenses

If you itemize your deductions, then the IRS will allow you to deduct dozens of medical expenses. The following items are all examples of qualified expenses. 

• In-patient care at a hospital or similar institution, including meals and lodging
• Chiropractor fees
• Ambulance or other transportation service
• Laboratory fees and fees for X-rays
• Artificial limbs, eyeglasses, contacts, hearing aid (including batteries), and artificial teeth
• Prescription medicines and insulin
• Medical supplies, such as bandages and crutches
• Dental treatment, including fees for X-rays, fillings, braces, extractions, dentures, etc.
• Eye examination fees or fees paid for eye surgery to treat defective vision, such as laser eye surgery or radial keratotomy
• Cost of equipment and materials required for using contact lenses, such as saline solution and enzyme cleaner

But remember, the IRS only allows you to claim the medical expenses that exceed 7.5% of your adjusted gross income. Thus, make sure to keep track of all your expenses throughout the year to qualify for the largest deduction possible. 

9. Stock losses

Millions of people have taken losses in the stock market lately, and many retired senior citizens are having the same problem. If you claim your stock losses now, they can later be used to offset your gains. In addition to this, you can deduct up to $3,000 in capital losses a year against ordinary income. Any loss remaining can also be carried forward into future years to be used until it is depleted. 

10. Seek professional advice

With constantly changing tax codes, it can be difficult for even the most up to date professional to stay on top of every change in tax law. To be absolutely sure you are taking advantage of every deduction and credit you can, you might want to consider hiring a tax professional to help you prepare your taxes.  

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

Many people have questions about IRA contributions, especially this time of year.  Contributing to an IRA may be tax deductible and you have until April 18, 2011 to make a contribution for the 2010 tax year.  The following information provided by the IRS provides additional details and information.

Taxpayers Have Extra Time to Make a Contribution to Their IRA This Year

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This year, you have a few extra days to make contributions to your traditional Individual Retirement Arrangements. That’s because Emancipation Day, a legal holiday in the District of Columbia, will be observed on Friday, April 15, 2011, which moves the due date for filing your tax return and making contributions to your 2010 IRA to Monday, April 18, 2011.

Here are the top 10 things the Internal Revenue Service wants you to know about setting aside retirement money in an IRA.

1. You may be able to deduct some or all of your contributions to your IRA. You may also be eligible for the Savers Credit formally known as the Retirement Savings Contributions Credit.
2. Contributions can be made to your traditional IRA at any time during the year or by the due date for filing your return for that year, not including extensions. For most people, this means contributions for 2010 must be made by April 18, 2011. Additionally, if you make a contribution between Jan. 1 and April 18, you should designate the year targeted for that contribution.
3. The funds in your IRA are generally not taxed until you receive distributions from that IRA.
4. Use the worksheets in the instructions for either Form 1040A or Form 1040 to figure your deduction for IRA contributions.
5. For 2010, the most that can be contributed to your traditional IRA is generally the smaller of the following amounts: $5,000 or $6,000 for taxpayers who were 50 or older at the end of 2010 or the amount of your taxable compensation for the year.
6. Use Form 8880, Credit for Qualified Retirement Savings Contributions, to determine whether you are also eligible for a tax credit equal to a percentage of your contribution.
7. You must use either Form 1040A or Form 1040 to claim the Credit for Qualified Retirement Savings Contributions or if you deduct an IRA contribution.
8. You must be under age 70 1/2 at the end of the tax year in order to contribute to a traditional IRA.
9. You must have taxable compensation, such as wages, salaries, commissions, tips, bonuses, or net income from self-employment to contribute to an IRA. If you file a joint return, generally only one of you needs to have taxable compensation. However, see Spousal IRA Limits in IRS Publication 590, Individual Retirement Arrangements for additional rules.
10. Refer to IRS Publication 590, for more information on contributing to your IRA account.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.