In the final part of this 3-part series on Early Retirement, Mr. Lewins offers questions to ask yourself and your financial advisor before deciding to take early retirement.

So, before making the final decision on whether or not to take early retirement ask yourself and your financial advisor the following questions:

1. How much money, as an annual percentage return, do I need my portfolio to generate each month/year? For example, if I have $500,000.00 in assets and I need $3,000.00 /month before taxes, then I need my portfolio to generate 7.2% after any fees or expenses.

2. If there are no fixed income investments that will generate the income I need, would I rather lower my needs to a level equal to what fixed income investments can generate or am I willing to put some or all of my assets at risk in order to make higher returns?

3. Am I better off working a few more years in order to generate additional retirement assets?

4. Are health insurance and life insurance issues I need to take into consideration?

5. What, if any, options for lifetime income are offered by my employer?

Remember, once you make the decision to retire it is hard to re-enter the workforce at a comparable level should you find that your assets are insufficient to meet your needs. Be realistic in your needs and expectations, and you should be able to enjoy your golden years.

Posted by Richard A. Lewins at 05:06 PM | Permalink | Comments (0) | TrackBacks (0)

This is the second part of a 3-part series in which the author discusses some of the risks associated with early retirement.

The first problem is it is just that, an average. It does not mean that the market returns 10% to 12% each and every year, only that over the long term, ten years or twenty years, it will average those returns. And even if the market did return 10% to 12% each year, it would not do it on a steady, month in month out annualized 10% to 12 % basis; however, the retiree is now dependent on a steady, month in month out income, much like the paycheck he was receiving while employed.

The second problem is the broker or advisor is attempting to use capital gains or total returns as a substitute for income. Again, these retirees need steady, month in month out income. Common stocks by their very nature are not that predictable. There are instruments that provide the type of predictable income needed by retirees, such as CD's, bonds, bond funds, preferred stocks and Unit Investment Trusts (UIT's) that are comprised of fixed income instruments; however, they do not typically provide the upside potential associated with common stocks or stock mutual funds.

The question then becomes, can the retiree accept the risks associated with the potential returns afforded by the stock market, or is it more important to have a steady, predictable stream of income? In most cases the answer is the latter, but the retiree is not presented with the option of a lower but more predictable income stream; he is only shown the average market return data leaving him with a false sense of security regarding his decision to accept early retirement.

To compound the mistake of substituting market returns for income, many brokers and advisors set up the monthly withdrawals under a 72(t) plan. This allows for systematic withdrawals from a retirement account before the age of 59 ½ that will not be subject to early withdrawal penalties from the IRS; however, the payments are set by a formula that cannot be changed for five years or until the retiree reaches age 59 ½, whichever is later, or the retiree will be subject to penalties and interest on all withdrawals taken to date. This means that even if the retiree discovers the faulty reasoning of the financial advisor, he is stuck with the plan until the later of five years or age 59 ½.

Posted by Richard A. Lewins at 05:09 PM | Permalink | Comments (0) | TrackBacks (0)

As many companies are downsizing, or looking to replace older (read: higher compensated) employees with a younger (read: cheaper) workforce, many workers in their early to mid - fifties are being given the option to take early retirement. A great many of these individuals have the same profile:

1) They have accumulated significant retirement assets, including company stock, 401k contributions and other retirement plan savings.
2) They have had little or no input in determining how those assets have been invested.
3) They have had little or no investment experience, especially when it comes to managing such a large sum of money as their retirement savings.
4) They will be relying on these assets to meet their financial needs in retirement.
5) They need professional advice.

What happens in many cases is that they are approached by, or recommended to, a stockbroker/financial advisor who claims to be able to offer a plan that will meet the income needs of the retiree and still allow for growth of the underlying assets. What the "advisor" / "broker" shows the retiree in support of this proposition is charts, graphs and the like that reflect the average, long term growth associated with investment in the stock market or various indices meant to reflect the market as a whole. The average annual growth rate evidenced is usually somewhere between 10% - 12%.

This is the first in a 3-part series on Early Retirement

Posted by Richard A. Lewins at 04:55 PM | Permalink | Comments (0) | TrackBacks (0)

The recent Raleigh, North Carolina, waste plant fire brought home a sobering truth about modern life. As we go about our days in this modern world, there are hazards and threats, not of our making nor even of our comprehension, that surround us.

The fire at this suburban waste plant released tremendous clouds of potentially deadly chlorine gas. Human contact could cause death or severe injury. Evacuations were required.

I will venture to guess that few, if any, of the people living downwind of this plant on a daily basis gave it much thought. Yet in a moment this seemingly benign industrial location became a deadly time bomb. The fumes released from this waste plant could kill or destroy as quickly and easily as any terrorist threat.

And in our modern world, where people and industry and business and government rub shoulders on a daily basis, the risks that our lives, our health, our well-being can be taken from us in an instant is a reality we have come to live with. Whether malicious, negligent, or simply fortuitous, events such as this one remind us of how fragile our dreams and plans, and indeed our daily lives, really are.

Posted by David P. Hersh at 07:12 AM | Permalink | Comments (0) | TrackBacks (0)

On September 29, 2006, The Heart Rhythm Society (HRS) finalized recommendations for revising the system used by industry, regulators and clinicians to monitor and publicize implantable-device performance problems. Key goals of the recommendations include:
• improved recognition of potential device malfunctions
• postmarket surveillance and reporting of any problems
• communication among industry, federal agencies, clinicians and patients
This document is one of several fixes to the system used by device companies and the US Food and Drug Administration to track and respond to malfunctions in pacemakers and implantable cardioverter defibrillators (ICDs). The shortcomings of the present system were widely criticized in 2005 after a highly publicized recall of Guidant ICDs with potentially fatal design flaws; Guidant was criticized, too, for how they responded to the recall. Even though the company reported the problems to the FDA, they did not promptly inform clinicians and the public.

The final HRS document is essentially unchanged from the April 2006 draft. The guidelines have been published online and are scheduled for publication in the October 2006 issue of the society's journal Heart Rhythm.

How can clinicians help?
Consider conversations with patients and talk not only about the benefits of the devices or the risks associated with implantation but inform them that a device could have a malfunction because they are made by human hands and they are not perfect.

How can physicians help?
Rather than explanations, consider options such as reprogramming the device or more frequent follow-up and the lower risk association with those options versus replacing a device

How can Guidant and other manufacturers help?
Expand use of wireless and remote-monitoring technologies to monitor devices for potential problems
Rely on independent experts for internal review of device performance
Communicate with physicians and patients directly when problems occur

How can the FDA help?
Improve and intensify postmarket surveillance of device performance
Simplify communications with physicians and the public about malfunctions
The term recall which is inaccurate and implies a need to surgically remove the device when that may not be necessary--get rid of the term

Posted by David P. Hersh at 06:38 PM | Permalink | Comments (0) | TrackBacks (0)