Strategies or a Secure uture Retirement WatchBOB CARLSON’S · 2019. 6. 14. · plan. If you can’t pull a complete plan together right away, at least do the mini-mum necessary,

Retirement WatchBOB CARLSON’S Strategies for a Secure Future

Vol. 29, Issue 7 July 2018

Dear Reader:The NBA playoffs ended with the

Golden State Warriors winning the championship and giving me ideas to share. I don’t follow the NBA closely, but this year was unique. We can apply some lessons from the teams that ad-vanced to the semifinals to our financial and retirement plans.

A key lesson is to focus your worrying on things you can control and spend lit-tle time agonizing about the things you can’t influence. Key players are likely to be injured, and opposing players some-times play better than they usually do. Winning teams know they can’t control or forecast those events. Instead, they focus on factors they can control and on making the best choices from the options available as events occur.

I frequently run into retirees who spend a lot of time trying to antici-pate what’s going to happen next in the economy and markets or which changes Congress is likely to make. That information could be helpful, but I haven’t found anyone who consistently forecasts them well.

Similarly, the top teams learn to adapt and change. They enter the season with goals and a plan. During the season, circumstances sometimes change, and the coaches and players change plans as needed. For example, the Boston Celtics lost key players during the season, yet they adapted and fell just short of mak-ing it to the finals.

Experience, dedication and education also are critical. It is not an accident that the Cleveland Cavaliers and the

Golden State Warriors made the finals for the fourth consecutive year. They know how to cope with the drama and stress of championship games, and they know from experience that they’re good enough to win. If you don’t have a lot of experience, find one or more advisors who do and lean on them for advice and counsel.

The Golden State Warriors can teach us that no matter how tough a situation seems, it’s important to have fun. Coach Steve Kerr said joy is one of the team’s core values. Remember, the reason you’re working for financial security in retirement is so you can relax and spend time with the things and the people you enjoy.

10 Essential Actions for Every Estate Plan There are basic

actions that should be taken in your estate planning, whether the

estate is taxable or not.Too many people still believe that

because their estates aren’t taxable

under federal law, they don’t need to do any estate planning. Others think they’ll wait until the dust settles on the 2017 tax law before they take action. Those are mistakes. In most estates, the non-tax issues always have been more important than the tax planning, and you never know when those non-tax features of the plan will be needed.

That’s why there are fundamental actions you should take regardless of the tax status of your estate.

• Keep moving forward. There are a lot of issues that must be resolved in developing an estate plan. In most estates, it seems there always are a few issues that take more time and thought

(Continued on page 2)

What Every Spouse Needs to Know

about Inheriting IRAs . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Your Cash Sources for the Next Emergency . . . . . 6

Act Now to Avoid Higher Medicare Premiums . . . 7

Preparing for More Confusing and

Volatile Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Managing Risk Late in the Economic Cycle . . . . . 11

The Aging Excuse . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

In This Issue

Actions to Create the Retirement You DesireJuly 2018 2

to resolve. Don’t let the difficult issues leave you

with no estate plan or an out-of-date plan. If you can’t pull a complete plan together right away, at least do the mini-mum necessary, such as a basic will and powers of attorney.

It is very acceptable to prepare an es-tate plan in installments, and it’s better than not having a plan while waiting for a few pieces to come together. Assemble a simple, basic plan now that covers the essentials. Then, work toward a more robust plan as you learn more about the tools available, refine your goals and resolve disagreements.

• Keep a record of your estate. There’s a story that W.C. Fields didn’t think banks were safe, so he diversified by stashing relatively small amounts of his money in banks all over the coun-try. He didn’t keep a master list of the banks, and his heirs never were sure they found all the money, though they devoted resources trying to track down it all. Fields probably knew how to find everything, but he didn’t give anyone else all the information.

I’ve heard different variations of this story over the years regarding estates of all sizes. I’ve talked to people who still are convinced their long-deceased parents had assets stashed away that weren’t found. Others spent a lot of time and money tracking down all the assets. Some people report finding money stashed in each coat in their parents’ closets.

Without a good record of your assets

and liabilities, your accumulated wealth won’t reach your intended beneficiaries and your estate planner can’t deliver the best advice.

At a minimum, you should main-tain a complete list of your assets and liabilities and update it at least annually. Share this information with your estate planner and the executor (or executors) of your estate. And make sure your executor knows where to find all the

supporting information. Even better, prepare a record of all your key financial items and information, including online accounts. For help compiling a list, use my report, To My Heirs. For more in-formation about the report, go to www.RetirementWatch.com, roll your cursor over “About Bob Carlson” and click on “Bob’s Library.”

• Estimate cash flow. Many people overlook cash flow when developing an estate plan. But cash flow and sources of cash are vital to your loved ones. Debts must be paid. Lawyer’s fees and other

expenses will be incurred. The expens-es of running and maintaining the estate’s property and the regular living expenses of dependent survivors must be paid while the estate is being settled. Of course, if taxes are due they must be paid with cash.

Estimate how much cash the estate and your dependents will need before it is settled and where it will come from to pay what is owed. If the estate won’t have enough cash, make a plan. You can sell some assets now, provide that some peo-ple will get property instead of cash, buy life insurance, or give the executor ideas on how to raise cash. Many estate plan-ners advise limiting specific cash bequests in your will to avoid cash flow problems.

• Choose executors and trustees with care. Most people spend a lot of time on their plans, and then select the executors and trustees as an afterthought. Often, the oldest child or sibling is selected by default. Unfortunately, even a good estate plan can be ruined if the wrong people implement it. Give a lot of thought to who should execute your plan.

• Anticipate conflicts and reduce them. Many estates have built-in conflicts that could have been resolved by better planning. For example, if kids don’t get along now, and if you are always mediating their disputes, then they aren’t likely to amicably manage as-sets or decide how to divide them. Don’t create an estate plan that forces them to agree or work together. It is probably better to give them separate ownership

Bob Carlson’s Retirement Watch™ (ISSN 1077-3924) is edited by Robert C. Carlson and published monthly by Eagle Products, L.L.C., 300 New Jersey Ave, NW, Suite 500, Washington, D.C. 20001, Customer service: 800-552-1152. E-mail: [email protected]. Website: www.RetirementWatch.com. Subscription cost is $99 annually. Copyright 2018 by Eagle Products, L.L.C. POSTMASTER: Please send address changes to Bob Carlson’s Retirement Watch, Subscriber Services Department, P..O. Box 1901, Williamsport, PA 17701. Postage paid at periodical rates at Centreville, VA and additional mailing offices. The information in this newsletter is from sources believed reliable, but no guarantee or warranty is made as to its accuracy. The editor, owners, and publisher, as well as their clients, employees, associates and/or family may have positions in securities and instruments recommended or reviewed in this newsletter. The editor and publisher assume no liability for the reader’s use of the information contained herein. Letters and e-mail from readers are encouraged. Editor: Robert C. Carlson; Editorial Director: Paul Dykewicz; Group Publisher: Roger Michalski.

Without a good record of your assets and liabilities, your accumulated wealth

won’t reach your intended beneficiaries and your estate planner

can’t deliver the best advice.

www.RetirementWatch.com July 2018 3

of assets, different voting rights, or name someone else to make decisions about dividing the property.

Other times the roles of an individ-ual create conflicts. A classic conflict is when a surviving spouse is made trust-ee, receives income from the trust and the children receive the trust property after the spouse dies. Often, the chil-dren end up believing that the spouse invested for maximum current income at the expense of earning capital gains for the future. Your estate plan should avoid such built-in conflicts. At best, they lead to hard feelings and, at worst, expensive litigation ensues.

• Prepare to make trade-offs. An es-tate plan is a balancing act. The balance needs to be struck between your goals, the needs of your family, the law and perhaps other factors. For example, you want to provide for your spouse but probably also ensure your children eventually receive a legacy. Should you leave everything outright to your spouse and hope for the best? Or should you put some or all of the estate in a trust with an independent trustee?

A good estate planner will present you with several alternative plans to reach your goals. Each will handle the trade offs in different ways. You choose the alterna-tive that strikes the balance you prefer.

• Carefully consider controls.

Sometimes controls on inheritances are a good idea, such as when a beneficiary doesn’t have good judgment or experi-ence handling a meaningful amount of money. In such cases, it might be best to put property in a trust with some restrictions, at least until the beneficiary reaches a certain age.

But some people go a step further and dictate in detail how wealth is and is not to be invested and distributed. There are trusts saddled with restrictions that require them to be invested in Treasury bills, gold stocks or the stock of certain companies, to name just a few exam-ples. Such controls assume the future will be just like the past and don’t let trustees, executors, and heirs adapt to changing circumstances.

• Make your general plan known. If you don’t tell heirs your plans, they will develop expectations. Feelings tend to be hurt when they are surprised after your death. That can lead to anger or bitterness that might be taken out on others in the family. Also, heirs might plan their financ-es with certain expectations about your estate plan and have difficulties when the reality is different. You should let people know generally how they’re affected by your plan. For example, if you aren’t going to treat heirs equally, you will leave money to charity, or you know that someone is expecting certain property, it is important

to let the affected people know your inten-tions and reasons ahead of time.

• Don’t circulate your will. While you want the general outline of your plan known among those affected, don’t cir-culate the will. It is likely to be updated periodically, and having different ver-sions of a will circulating over the years makes confusion and even an expensive will contest more likely. Also, some people might be upset about changes in some details, even when they wouldn’t have cared if they’d known only the final version.

• Update and revise. Your estate plan never is final. The property you own changes, as do the values. The mem-bers of your family change through births, deaths, marriages and divorces. Your goals might change. You might be inclined to leave more or less to charity or specific heirs over time. You need to meet with your planner at least every two or three years to review changes in your financial picture, family and goals as well as the law.

• Keep it as simple as possible. Some people and their attorneys get so wrapped up in the latest estate plan-ning tools that they overlook simpler strategies that will accomplish the goals. Be sure complications are necessary to meet your goals before putting them in your plan.

What Every Spouse Needs to Know about Inheriting IRAsOne of the

most difficult financial tasks facing a surviv-ing spouse is how to handle

the individual retirement accounts (IRAs) and other qualified retirement plans.

Mistakes often are made with inher-ited IRAs, whether they are inherited by spouses, children or others. It is

understandable. Retirement accounts are treated differently than most other assets in the estate. The rules for in-herited IRAs aren’t intuitive or simple. But it’s important to be sure heirs know what to do, because making the wrong


decision with the inherited retirement account can trigger thousands of dol-lars in extra taxes.

This month we’re going to focus on the choices for surviving spouses. Surviving spouses have more op-tions with inherited IRAs than other beneficiaries. Those options provide the opportunity to increase the after-tax value of the IRA but also create more potential pitfalls.

A surviving spouse who is a beneficiary of the deceased spouse’s traditional IRA has the same choices as any other IRA beneficiary. But there’s a twist to one of them, and the surviving spouse has an addi-tional option.

• One option is to distribute all of the IRA assets within five years of the original IRA owner’s death. The IRA can be distributed on any schedule within those five years. All the distributions will be included in gross income and taxed in the same way they would have been to the original owner.

This usually is the least attractive option from a tax planning perspec-tive. But it’s one to be considered when there’s a need for the cash. It is important to note that, regardless of the age of the beneficiary, the 10% tax on distributions made before age 59½ doesn’t apply to distributions following the death of the original owner. Only income taxes will be due.

• The second option is to estab-lish the account as an inherited IRA. The legal title of the IRA must be changed to reflect that it is an

inherited IRA held for the benefit of the surviving spouse. Each IRA custodian uses its own particular wording, but the title must have the name of the original owner, state that the owner is deceased, name the beneficiary and state that the IRA is “for the benefit of ” or “FBO” the beneficiary. For example: Max Prof-its, deceased, IRA FBO Rosie Profits.

So far, these rules are the same as for beneficiaries who aren’t surviv-ing spouses. Here’s one area where the rules are different for a surviving spouse.

When a non-spouse beneficia-

ry establishes an inherited IRA, required minimum distributions (RMDs) must begin by Dec. 31 of the year following the original IRA owner’s death.

Surviving spouses follow the same rule if the deceased spouse had already reached the age to begin RMDs, 70½. But when the spouse passed away before reaching RMD age, the surviving spouse doesn’t have to begin RMDs from the inher-ited IRA until the deceased spouse would have been age 70½. When the RMDs begin, the surviving spouse can choose to use his or her own life expectancy or can take the RMDs based on the age the deceased

spouse would have been.The additional option for the sur-

viving spouse is available only if the surviving spouse is the sole primary beneficiary of the IRA. If others share as primary beneficiaries, then all are treated as non-spouse bene-ficiaries. Keep in mind that the sur-viving spouse can take distributions in any amount before the RMDs begin.

• The third option, and one that’s unique for surviving spouses, is the spousal rollover, or fresh start, IRA. The surviving spouse can use this option for his or her share of an IRA even when there are other primary beneficiaries. Under this option, the surviving spouse rolls over the assets to his or her own IRA. The rollover can be done by the IRA custodians, or the surviving spouse can take a distribution and deposit that amount into his or her own IRA within 60 days. The spousal IRA can be a new IRA set up for this purpose or an existing IRA. The assets also can be moved tax-free to any other qualified retirement plan account of the surviving spouse, such as a 401(k) account.

Once a spousal IRA is created, it is treated as though it always were the surviving spouse’s IRA. No reference is made again to the pre-vious IRA, and it is not considered an inherited IRA. The surviving spouse names new beneficiaries. The RMD schedule is determined solely by the surviving spouse’s age. That’s why it’s called a fresh start IRA. Once executed, a spousal

Once a spousal IRA is created, it is treated as though it always were the surviving spouse’s

IRA.


rollover is irrevocable.• A fourth option is very similar

to the third option. The surviving spouse simply treats the inherited IRA as his or her own IRA. This has the same effects as the spousal IRA, but it rarely is done this way. Usu-ally, the spousal rollover is used to avoid any misunderstanding about the surviving spouse’s intentions.

The best option usually depends on the surviving spouse’s age. Re-member that after a spousal rollover, the IRA is treated without reference to the previous IRA. That means when the surviving spouse is under age 59½, the 10% penalty on early distributions applies to distributions from a spousal rollover IRA, unless the surviving spouse qualifies for one of the other exceptions.

But the 10% early distribution penalty doesn’t apply to distribu-tions from an inherited IRA. If the surviving spouse is less than age 59½ and might need to take distri-butions before reaching that age, then the inherited IRA likely is the best option. When the surviving spouse is older than age 59½, then the spousal rollover usually is the preferred option.

Another important point is that the spousal rollover can be executed at any time. A younger surviving spouse first can treat the IRA as an inherited IRA. Then, after reaching age 59½ (or at any other time), a spousal rollover can be executed with the remaining IRA balance.

Choosing a strategy can be more difficult when the surviving spouse

was substantially younger than the deceased spouse. In that case, under the inherited IRA, the surviving spouse might be forced to begin RMDs at a relatively early age, even before turning age 59½. The sur-viving spouse might not want to begin RMDs that early, and the way to avoid that would be to choose a spousal rollover. The tradeoff is that if money is needed from the IRA af-ter the rollover, the surviving spouse will owe both income taxes and the 10% early distribution penalty. The better choice depends on how likely the spouse is to need to take distri-

butions before age 59½.The effects on the next generation

of beneficiaries also should be con-sidered.

When the surviving spouse choos-es the inherited IRA option and passes away before starting RMDs, then the next generation of benefi-ciaries must begin RMDs by the end of the year following the surviving spouse’s death, but they can use their own life expectancies to compute those RMDs. When the surviving spouse was taking RMDs because the first deceased spouse would have reached age 70½, then the next generation of beneficiaries must

continue the distribution schedule the surviving spouse was using.

When the spousal rollover was used, the rules are a little different. If the surviving spouse hadn’t begun RMDs from the fresh start IRA at the time of his or her death, then the next generation of beneficiaries must begin RMDs by Dec. 31 of the following year using the oldest beneficiary’s life expectancy. If the surviving spouse had begun RMDs, then the next generation has the op-tion of taking the RMDs using either their own life expectancies or using the distribution schedule established by the surviving spouse.

There’s one other angle to con-sider. I regularly advise people not to name their estates as IRA ben-eficiaries or not to fail to name an IRA beneficiary. That’s because the potential for deferral is lost when an entity other than a natural person is the beneficiary. The IRA must be distributed within five years. But there’s a narrow exception when the surviving spouse is the sole executor of the estate and also the sole bene-ficiary of the IRA proceeds that pass through the estate. In that case, the surviving spouse still can execute a spousal rollover within 60 days after proceeds are received from the IRA. But the surviving spouse can’t treat the IRA as an inherited IRA. (IRS Private Letter Ruling 201618011)

That’s a narrow exception and not one that you should rely on.

If you want your spouse to inherit your IRA and have the widest range of options, you should name him or

But employers are allowed to place

additional limits on beneficiaries, whether

spouses or non-spouses.


her as the primary beneficiary. Then, be sure your spouse will be informed of the options for handling the IRA and how to choose the better option.

There’s one other point to note. The same rules generally apply to both IRAs and employer retirement

plans, such as 401(k)s. But employ-ers are allowed to place additional limits on beneficiaries, whether spouses or non-spouses. For exam-ple, some employer plans require the full account to be distributed or rolled over to an IRA within a short

period. If you’ll leave money in a 401(k) or other employer plan, be sure to check the options and restric-tions for beneficiaries and make those available to your beneficiaries.

Lining up Your Cash Sources for the Next EmergencyOne key to a

successful retirement is being able to handle the surprises.

You don’t know when the surprises will come or what they will be, but you can bet retirement will have surprises. A sharp market downturn is one possible surprise. A wide range of large, un-planned expenses also is possible: home repairs, auto repairs or replacement, large medical expenses, help for chil-dren or other relatives and more.

What these surprises have in com-mon is that they create a sudden need for cash beyond your regular month-ly needs. Or, in the case of a market decline, a source of cash is impaired. A good retirement plan includes several options for coming up with the cash these surprises require.

Of course, you have a nest egg of investments, and some investments could be sold to raise cash. But selling investments often isn’t the most desir-able move.

When markets are down, you usu-ally don’t want to sell investments. Assuming you don’t think the decline is permanent and you’re a long-term in-vestor, the better strategy is to hold the

investments. You don’t want to sell at or near the bottom of a market downturn to raise cash only to see the investments turn around and recover their losses. That effectively increases your losses and increases the probability you’ll run out of money. There also could be cap-ital gains taxes and trading costs from selling investments to raise cash.

It is best to have other options for dealing with cash emergencies and to have them in place before the urgent cash needs occur. If you’ve been follow-ing my advice for a while, you’ve already taken several steps.

Guaranteed income. You should have guaranteed income that covers your basic, fixed expenses. Guaranteed income includes Social Security and annuities (either immediate annuities or deferred income annuities). Some people also will have a pension and perhaps another source of two of guar-anteed lifetime income. Guaranteed in-come doesn’t raise additional cash. But it ensures your basic, continuing living expenses are covered regardless of what happens in the markets. That reduces stress and might decrease the amount of cash you have to raise. It also can let you focus first on reducing some discretion-ary spending for a while to raise cash.

The safety fund. Another good

strategy is to set aside in safe invest-ments enough money to cover ex-penses for two to five years that won’t be covered by the guaranteed income. Knowing this money is in safe invest-ments, such as money market funds and certificates of deposit, also reduces stress in tough times, especially when markets tank. It means you won’t be forced to sell investments to cover regu-lar, planned spending. It also means you can tap the emergency fund to pay for a surprise. That gives you time to look for options to replenish the emergency fund or to wait for markets to recover.

Risk management. While some peo-ple manage their nest eggs to maximize gains, I think retirees should focus on managing risk. Determine which risks are in your portfolio and reduce or eliminate those you don’t want to take. That might mean reducing your stock allocation, even during a bull market that seems to have no end in sight. It also might mean holding investments that are lagging now, because risk management over the long term means you should have a diversified, balanced portfolio. At a minimum, know the maximum percentage of your nest egg that you want in stocks and other risky assets, and be sure not to exceed that level.


Having insurance is another way of managing risk. The insurance increases your regular fixed expenses. But insur-ance means your maximum exposure to most emergencies is limited. If you have traditional Medicare, you should seriously consider also having a Medi-care supplement policy and Part D prescription drug coverage. These are the two insurance policies every retiree should consider. Those in Medicare Ad-vantage plans already have this coverage built in.

Flexible spending. The more fixed expenses you have, the less you’re able to adapt at a tough time. That’s espe-cially true if there’s very little difference between your guaranteed or reliable income and fixed spending.

Most retirees can find a fair amount of flexibility in their spending plans. They can eliminate, reduce or delay expenses such as traveling, spoiling the grandchildren, dining out, entertain-ing and more. In your spending plan, put expenses into categories such as required, nice to have and aspirational. Periodically review the plan to identify aspirational and nice-to-have expenses.

Temporary borrowing. You should

have borrowing sources lined up to tap in a pinch. I generally don’t favor long-term borrowing in retirement (see our June 2018 issue), but sometimes it’s better to borrow short-term to avoid selling investments. You can pay back the loan over time either from other income or by selling the investments after they recover.

Borrowing is not as easy for retirees, because they don’t have steady pay-checks. It is a good idea to have your borrowing power locked in early in retirement to ensure it’s in place.

Often the best borrowing source in retirement is the reverse mortgage line of credit, also known as the home equity conversion line of credit. You don’t have to pay back any money you borrow against the line of credit as long as you live in the home. I discussed these in detail in the February 2018 edition of my online seminars, the Retirement Watch Spotlight Series and in the November 2015 issue of Retirement Watch.

You also can take out a traditional home equity line of credit. The disad-vantage of these loans is you have to begin paying at least interest on the loan

immediately. The interest rate also tends to be variable, so the payments can increase if interest rates are rising.

Your investment portfolio also might be a borrowing source. Most brokers al-low clients to take margin loans against their portfolios. The interest rate usually is very low. Your investment portfolio is your collateral for the loan. That limits the amount you can borrow. It also means that if your portfolio declines in value, the broker might sell some assets to pay part of the loan. That’s why it’s not a loan you want to maximize.

Note: Don’t set up a margin loan with an IRA. That could be considered a pro-hibited transaction and cause the entire IRA to be taxable.

Finally, permanent life insurance also is a good source of cash. Most policies allow owners to borrow against the cash value accounts. The loans often don’t have to be paid back. Instead, the loan principal and accumulated interest reduces the amount eventually paid to beneficiaries. The loans are tax free. You can take distributions from the cash value account instead of loans, but distributions usually are taxable.

Act Now to Avoid Higher Medicare Premiums in Two Years

The Medicare premium surtax jumped higher for many retirees in 2018, making planning for this

Stealth Tax more important now and in the future.

The Medicare premium surtax, or surcharge, is officially known by the

acronym IRMAA (Income-Related Monthly Adjustment Amount). It was created by the Medicare Modernization Act of 2003, and was first imposed in 2007. But a 2015 law applied the surtax at lower income levels, beginning in 2018.

The idea behind the surtax is that higher-income beneficiaries should pay more for Medicare. This is part of the

means-testing that I believe will expand as the financial conditions of Social Se-curity and Medicare deteriorate. Under the basic rules, Medicare Part B premi-ums are supposed to pay for 25% of ex-pected costs of the program. But those with higher income levels pay a higher percentage of costs under IRMAA, with the highest income bracket paying 80% of expected costs through premiums


and the surtax. Their premiums, plus IRMAA, can be more than 200% of the basic Part B premium. There’s a similar surtax for Part D prescription drug coverage.

As the accompanying table shows, the surtax begins for married couples filing jointly when modified adjust-ed gross income (MAGI) exceeds $170,000 and for individuals when MAGI exceeds $85,000. The top surtax is imposed on married couples when MAGI exceeds $320,000 and on sin-gles above $160,000.

The basic Part B premium totals $1,608 in 2018, while the highest surtax adds $3,535.20 to the annual bill. That’s only for Part B. A benefi-ciary with a Part D policy will have an additional surtax each month. The thresholds for the surtax are scheduled to be indexed for inflation after 2019. The surtax is paid as an addition to the premium. For both Parts B and D, you can have it withheld from Social Security benefits or Medicare can send you a bill each month.

IRMAA is imposed with a two-year lag. For example, your MAGI from 2018 will determine your IRMAA, if any, for 2020. The Social Security Administration (SSA) receives your income tax data from the IRS in 2019 after your 2018 tax return is filed. In late 2019, the SSA sends you a letter telling you what the surtax will be for 2020.

The first thing to note is that you can request a reduction in the surtax when there’s been a life-changing event that affects your income. If you just retired and therefore experienced a decline in income, you can file Form SSA-44 with

the SSA and report the “work stop-page.” You also might need to do this for the second year of retirement. On the form, you estimate the MAGI for the current year and provide docu-mentation of the life-changing event and the lower income.

Other life-changing events that qualify for a change in the surtax are marriage, divorce, annulment, death of a spouse, work reduction, loss of income-producing property, loss of pension and an employer settlement

payment due to the employer’s bank-ruptcy. When you want to appeal the surtax and your life-changing event doesn’t fit into one of those categories, consider filing a Request for Recon-sideration on Form SSA-561-U2. You state the reasons you believe the MAGI from two years ago shouldn’t be used to determine the current year’s Medi-care premium surtax and wait for SSA to reply.

One-time increases in income don’t qualify for an adjustment. Your income might have increased because you converted part of a traditional IRA to a Roth IRA. Or there might have been a sale of a home or other real estate or a large part of your investment portfolio. You might have received a significant bonus at work or some other large,

one-time payment.Your surtax won’t be adjusted based

on any of these income increases. You’ll owe the higher surtax for one year. After that, when your regular income is used to compute future surtaxes, the surtax will decline or disappear.

That’s why it’s important to consider IRMAA and other Stealth Taxes (such as including Social Security benefits in gross income) as part of your regular income tax planning.

The first thing to keep in mind is that for anyone subject to the surtax, it is likely to be a small percentage, usually 1% to 2%, of total income. That means it probably isn’t worth making dramat-ic moves to avoid or reduce the surtax. Also, someone who is well above the surtax threshold would have to reduce MAGI too much to avoid the surtax.

Even so, when additional income triggers the IRMAA or a higher IRMAA, the marginal tax rate on that additional income can be very high. The income triggers its own income taxes plus the surtax. So, if you’re near the threshold for triggering the surtax or the next level of the surtax, it can be worth your while to take steps during the year to reduce or eliminate the sur-tax. Plus, a married couple’s surtax is determined separately for each spouse. So, you could be paying double the numbers in the table.

Another reason to include the surtax in your tax planning is that the “hold harmless” rule for Social Security ben-efits doesn’t apply to the surtax. Under the hold harmless rule, when a bene-ficiary has Medicare Part B premiums

This is part of the means-testing that I

believe will expand as the financial conditions

of Social Security and Medicare deteriorate.


deducted from Social Security benefits, any increase in Medicare premiums can’t cause a net reduction in the Social Security benefits. The premiums can increase only as much as the benefits. The hold harmless rule doesn’t apply to the surtax. The surtax can eat away your Social Security benefits.

This and other Stealth Taxes are trig-gered by your MAGI. Your AGI is the number on the bottom of the first page of Form 1040. It is increased by your tax-exempt interest income, EE sav-ings bond interest used for education expenses and excluded foreign earned income to arrive at MAGI.

MAGI isn’t affected by itemized deductions, such as mortgage interest, state and local taxes and charitable contributions. Instead, you reduce MAGI by reducing gross income and by increasing deductions from AGI. Frankly, few retirees qualify for the de-ductions from AGI, so you’re best bet is to focus on reducing gross income.

Roth IRA distributions aren’t in-cluded in gross income. So, you can reduce future surtaxes by converting some traditional IRAs or 401(k)s to a Roth IRA. The future distributions from the Roth IRA won’t be included in gross income and won’t affect the surtax. Keep in mind that the convert-ed amount will be included in gross

income for the year of the conversion, so it could trigger the surtax in two years. But after that, taking money from a Roth instead of a traditional IRA should save both income taxes and the surtax.

It is best to do conversions a couple of years before you begin Medicare. But later conversions often can pay off when retirement is likely to last 20 years or longer. You can convert enough each year to keep you from drifting into the next higher income tax bracket and IRMAA threshold. Review our May 2018 issue for details about IRA conversions.

Tax-wise management of your investment portfolio also can reap sav-ings by reducing MAGI. Investment fundamentals should be the primary reason for every investment decision, but consider the tax angles as well.

Before selling an investment at a gain, consider the amount of sales al-ready made during the year and where that leaves total MAGI. It might make sense to defer a sale until the next calendar year. Another good strategy is to look for investments that have paper losses. Sell those to offset any gains you are taking. You also might be able to designate which shares you are selling to minimize the capital gains for the year. See our March 2018 issue for

details on designating the shares sold.When choosing mutual funds, con-

sider tax efficiency. Some mutual funds do a lot of trading each year, and that generates large distributions to share-holders. Other funds consider taxes in their strategies and minimize distribu-tions each year. Tax efficiency can be found in a fund’s prospectus and also from services such as Morningstar.

You also should consider limiting distributions from traditional IRA and 401(k)s, annuities and similar tax-de-ferred vehicles. These distributions are included in gross income and taxed as ordinary income. Of course, some of these distributions are out of your control, such as required minimum distributions after age 70½. But there are times when you might need extra spending money and have a choice as to the source of that money. Instead of taking it from a traditional IRA, for example, you might want to take it from a Roth account or by selling from a taxable account an asset with little or no gain.

The key is to know during the year what your MAGI is likely to be and make choices that will keep it within that range.

Who Pays Higher Medicare Premiums in 2018?2016 MAGIIndividual

2016 MAGIMarried Joint

Part BMonthlyPremium

Part DMonthlySurtax

TotalMonthlySurtaxes

% TotalPart B Cost

≤ $85,000 ≤ $170,000 $134.00 $0.00 $0.00 25%≤ $107,000 ≤ $214,000 $187.50 $13.00 $66.50 35%≤ $133,500 ≤ $267,000 $267.90 $33.60 $167.50 50%≤ $160,000 ≤ $320,000 $348.30 $54.20 $268.50 65%> $160,000 > $320,000 $428.60 $74.80 $369.40 80%

http://medicare.gov/your-medicare-costs/costs-at-a-glance/costs-at-glance.html#collapse-4811

Investment Recommendations and PorfoliosJuly 2018 10

Preparing for More Confusing and Volatile Markets Countervail-

ing forces will make the coming months a difficult time for many

investors and increase uncertainty and volatility in the markets.

The Federal Reserve supported stocks and bonds after 2009 with its quantita-tive easing policy. But the bond buying ended in 2015, and this year the Fed is raising interest rates and shrinking its balance sheet.

We can see the tighter monetary pol-icy reflected in the monetary base. The European Central Bank plans to follow the Fed’s tightening example, perhaps beginning late this year.

This late phase of the economic cycle is a puzzling and uncertain period for investors. The economy usually doesn’t respond to changes in monetary policy for six months to two years. The econo-my will continue to look good by many measures while the Fed is tightening. Financial markets show the effects of tighter monetary policy before the economy does.

We’ve already seen that in action. Stocks are below the record highs they set in January. Bonds peaked in July 2016. Yet, the economy seems to be

largely unaffected. In fact, lately U.S. growth seems to have accelerated.

A further complication in this cycle is that tax cuts are offsetting some of the monetary tightening. But the tax cuts are a one-time stimulus. Their benefits should fade late in 2018 or sometime in 2019.

Big questions for investors are: Will tighter monetary policy will lead to a recession and, if so, when?

One warning sign is the yield spread or yield curve. That’s the difference between short-term interest rates and longer-term rates. The economy is growing when short rates are low-er than long rates, and the spread is big. But a small spread, when long-term rates are close to short-term rates, always occurs before a re-cession. A negative spread, when short rates are higher than long rates, almost always leads to a recession. Lately, we’ve had close to a flat yield curve.

It is possible this time that the late phase of the econom-ic cycle will be much longer than usual or that a recession

won’t occur. We haven’t seen the usual excesses in this expansion, and the Fed is wary of overreacting and triggering a recession because it has fewer tools to turn one around. Plus, banks and other elements of the private credit system are healthy enough to offset some of the tightening. We could have a long period of slower growth or a more gradual decline into a recession.

Whatever happens with the economy,

Investment Recommendations

3000

2013

-06-12

2014

-06-12

2015

-06-12

2016

-06-12

2017

-06-12

3400

3600

3800

4000

3200

4200

4400

Adjusted Monetary Base

Treasury Yield Spread

0.0

0.5

1.5

2.0

2.5

2013

-06-07

2014

-06-07

2015

-06-07

2016

-06-07

2017

-06-07

1.0

3.0


the financial markets are likely to be both more volatile and weaker than they were in 2016 and 2017.

Investors entered this year with high expectations about the economy and earnings. They also expect the Fed will tighten less than it said it will and that it won’t trigger a recession.

This positive outlook, coupled with being in the late stage of the economic cycle, makes markets much more vul-nerable to negative surprises than they

were over the last few years. Markets bounced back quickly from events such as the “Brexit” vote in the United King-dom, the bear market of early 2016, election surprises and more. Over the next year or two years, the downturns from negative surprises are likely to be steeper and markets aren’t as likely to bounce back as strongly. Also, negative surprises from earnings and economic data are more likely because of higher interest rates.

The economy is likely to look good at least through the end of 2018. But financial markets are more precari-ous, and overseas markets have shown they’re even more vulnerable than U.S. markets. At this stage, investors need to know the early warning signs of recessions and bear markets, keep their portfolios balanced and be prepared to make changes in their portfolios.

Managing Risk Late in the Economic CycleMarkets are

reacting to changes in monetary policy, the economy and

global politics, and we need to adjust our portfolios.

The biggest changes in the last cou-ple of months were in Latin America and other emerging markets. We’ve profited since early 2016 from our position in Price Latin America (PR-LAX). In the last few months, how-ever, Latin American stocks tumbled. The fund is down 8.73% over the last month and 11.93% for the year to date. It’s also down 1.23% over the last 12 months.

The problems began with higher U.S. interest rates and a rally in the dollar. Political problems, especially in Brazil, multiplied and intensified the effects. A nationwide truck driver strike large-ly shut down the Brazilian economy. Brazil’s presidential election, scheduled for October, now looks chaotic. There apparently is widespread talk of the

military being needed to restore order and replace corrupt politicians. The

problems in Brazil are accompanied by a financial crisis in Argentina and

PORTFOLIO Sector Portfolio Fund Allocation Ticker 4-Wk

ReturnAdd New

Cash?

DoubleLine Floating Rate 24.0% DBFRX 0.11% Yes

Cohen & Steers Realty Shares 10.0% CSRSX 3.79% Yes

Leuthold Core Investment 14.5% LCORX 1.67% Yes

Price Latin America 0.0% PRLAX -8.73% No

WCM Focused International Growth 32.5% WCMRX 3.65% Yes

iShares Gold Trust 5.0% IAU -1.27% Yes

iShares Commodities Select Strategy 14.0% COMT 1.00% Yes

*Returns are as of June 8, 2018

It's time to sell Price Latin America, as I explain in the Portfolio Watch article. Put the sale proceeds in iShares Commodities Select Strategy. There are no other changes to make this month.

Balanced PortfolioFund Allocation Ticker 4-Wk

ReturnAdd New

Cash?DoubleLine Floating Rate 27.0% DBFRX 0.11% Yes



Price Latin America 0.0% PRLAX -8.73% No





I recommend selling Price Latin America and putting the sale proceeds into iShares Commodities Select Strategy. Hold all other positions.


the usual problems in Venezuela. Of course, uncertainty surrounding the future of the North American Free Trade Agreement doesn’t help.

I can make a case for a recovery in Latin American stocks, but there’s too much uncertainty. I recommend sell-ing PRLAX from the Sector and Bal-anced portfolios. Put the sale proceeds in COMT, which we’ll discuss shortly.

WCM Focused International Growth (WCMRX) has avoided a lot of the global market turmoil by select-ing a few great stocks. The fund is up 3.65% in the last four weeks and 5.10% so far in 2018.

WCMRX is a concentrated fund, owning only a few stocks in what the managers believes are great compa-nies. A company has to have a history of above-average growth in revenues and earnings, plus little or no debt to be considered by the fund. In addition, its management must foster a culture of growth. The company also should benefit from key global trends and have barriers to competition. Once the fund owns a stock, it tends to hold it for a while.

The fund owns 33 stocks and about 38% of the fund is in its 10 largest positions. Turnover is only 21%. It has about 5.6% in cash.

The top positions recently were CSL, Keyence, Accenture, Chub and Taiwan Semiconductor. The key sectors in the fund were technology (22%), consum-er cyclical (17%), health care (16%) and industrials (13%).

We might be seeing the comeback we’ve been expecting from real estate investment trusts (REITs). Cohen &

Steers Realty Shares (CSRSX) is up 3.79% in the last four weeks and 7.89% in the last three months. It still is down 0.75% for the year to date. The fund’s been in and out of our portfolios over the years. Most recently, we added the fund in 2017 after REITs seemed to be bottoming from a correction. The recovery stalled in early 2018 after interest rates rose. Equity REITs aren’t interest-rate sensitive. They tend to do well when rates are rising because the economy is growing, as is the case now, but investors sometimes forget that.

The fund first develops an economic forecast and determines which types of REITs are likely to benefit from that scenario. Then, it selects REITs based on the quality of management and the properties owned, as well as valuations.

The fund’s portfolio turned over a lot during the last year. It now has larger positions in data centers and infra-structure and less exposure to malls, shopping centers and health care. The top sectors in the fund recently were offices (17%), apartments (15%), data centers (11%), hotels (8%) and health care (6%), with top holdings of UDR, Equinix, Prologis, Digital Realty Trust

and Extra Storage Space.The U.S. stock exposure in Leuthold

Core Investment (LCORX) has been creeping up following the correction in February. This tactical asset allocation fund uses proprietary models and a range of technical indicators to shift its allocation among U.S. stocks, foreign stocks (both developed and emerging markets), bonds and cash. It also can hedge against stock market declines.

At the start of 2018, about 67% of the fund was invested in U.S. stocks. As stocks peaked and then declined, the net stock exposure declined to about 40%. The fund began increasing the U.S. stock position after its manag-ers concluded we weren’t in the early phases of a new bear market. Recently, the net U.S. stock exposure was 47.5%. The fund also is about 20% in invest-ment-grade bonds (among the lowest bond positions in the fund’s history), 7% in cash and 5% each in developed and emerging market foreign stocks. Stock hedges are about 15% of the fund. But the fund’s positions can change rapidly.

This fund is a good investment for late in the cycle. It maintains exposure

Income Growth Portfolio Fund Allocation Ticker 4-Wk

Return Add New Cash?

DoubleLine Floating Rate 31.0% DBFRX 0.11% Yes




JPMorgan Alerian MLP ETN 7.0% AMJ 2.71% Yes




There are no changes to make in the portfolio this month. We had solid returns, showing the benefits of balance and diversification.


to U.S. stocks as the bull market continues, but the fund can reduce its stock exposure and even sell short as risk increases. The fund returned 1.67% in the last four weeks and 0.86% for the year to date.

Our commodity position in iS-hares Commodities Select Strategy (COMT) continues to do well. The late phase of the business cycle tends to be positive for commodities, as both economic growth and inflation

increase. Commodity prices also are rising because of supply constraints. Production was reduced during the bear market that ended in 2016, and it takes time for that production to be restored.

The fund is up 1.00% in the last four weeks and 8.31% for the year to date.

COMT can invest in any commod-ities included in the Goldman Sachs Commodity Index. It doesn’t track the index, but changes allocations based

on models developed by fund manager BlackRock. Typically, at least 25% of the fund is invested in energy com-modities.

The fund owns both futures con-tracts and stocks of commodity producers. Recently, stocks were about 30% of the fund with cash and futures contracts making up the other 70%. Energy was about 42% of the fund and agricultural commodities were about 30%. Metals, livestock and timber were small positions.

We also own gold through iShares Gold Trust (IAU) as a hedge against inflation and geopolitical crises. Gold hit a bottom at the end of 2015 and has been in a trading range the last year or so. It is down 1.27% in the last four weeks and 0.40% for the year to date.

Each of our portfolios holds Dou-bleLine Floating Rate (DBFRX). When interest rates are rising, bonds with fixed interest rates lose value. Floating-rate debt holds value better,

True Diversification PortfolioFund Ticker Alloc. 3 mos. 1-Yr. 3-Yr. 5-Yr. 10-Yr.Total Portfolio 100% -0.47 4.53 4.32 4.27 4.11

Plus or minus S&P 500 -0.66 -9.85 -6.60 -8.81 -5.33

Price Capital Appreciation PRWCX 11% 2.05 7.63 8.55 10.75 9.00

Price HY PRHYX 11% -0.50 1.35 3.91 4.34 7.16

FPA Crescent FPACX 18% -0.63 4.52 5.48 6.84 6.64

PIMCO All Assets All Auth* PAUDX 0% -1.50 2.15 1.79 -0.37 2.72

Berwyn Income BERIX 13% 1.27 3.08 3.38 4.49 6.61

Cohen & Steers Realty Sh CSRSX 5% 9.15 2.60 5.05 7.73 6.85

PIMCO Real Return** PRTCX 0% 0.35 -0.56 0.61 -0.38 2.45

Oakmark** OAKMX 5% 1.52 15.90 11.43 13.05 11.44

William Blair Macro Alloc*** WMCNX 12% -1.43 0.28 -2.03 1.49 n/a

Leuthold Core Investment**** LCORX 12% -1.36 7.77 5.33 7.42 3.92

iShares Select Commodity COMT 8% 7.76 25.88 1.75 n/a n/a

WCM Focused International Growth WCMRX 5% 4.35 13.08 9.83 9.64 n/a

Returns longer than one year are annualized. *Added to the portfolio in February 2012 issue. **Added in the December 2014 issue. ***Added in the September 2015 issue. ****Replaced MainStay Marketfield in the June 2016 issue. 1 Portfolio returns are as of June 1, 2018. Fund returns are as of May 31, 2018. N/A=Not Applicable.

This chart reflects the changes recommended last month. We eliminated PAUDX and PRRDX. The PRRDX proceeds were put in COMT as were some of the proceeds from PAUDX. The remaining proceeds from PAUDX were put in LCORX and WCMRX.

Retirement Paycheck Portfolio

Fund Ticker Allocation12-mo. Yield

Add New Cash?

DoubleLine Floating Rate DBFRX 50.0% 4.81% Yes

iShares Commodities Select Strategy COMT 5.0% 5.14% Yes

IBM IBM 5.0% 4.15% Yes

Verizon VZ 5.0% 4.77% Yes

AT&T T 5.0% 5.85% Yes

DoubleLine Income Solutions DSL 15.0% 8.88% Yes

JP Morgan Alerian MLP ETN AMJ 15.0% 5.16% Yes


We'll hold all positions. I'm watching DoubleLine Income Solutions, because its discount to net asset value keeps decreasing.


because yields on the debt rise and fall with market rates. The fund still can lose value because of liquidity problems or declining credit quality of bond issuers.

DBFRX puts a premium on safe-ty of principal. It doesn’t buy bonds with lower credit quality in order to increase yield. For example, the fund avoided energy company debt during the energy bear market, because its management expected many of the issuers would default, though the debt was paying very high yields.

The recent yield on the fund was 4.81%. It’s up 0.11% in the last four weeks and 1.68% for the year to date.

The Income Growth portfolio also holds JPMorgan Alerian ETN (AMJ), which is discussed with the Retirement

Paycheck portfolio.

RETIREMENT PAYCHECKTraditional income investments still

offer very low yields, and they’re losing value because interest rates are rising.

That’s why in the Retirement Pay-check portfolio we consider an ex-panded range of income investments,

including master limited partnerships (MLPs), preferred stock, high-yielding stocks, closed-end funds and more. We also don’t buy and hold. We manage risk by adding an investment when it is down or reasonably valued, and sell those that have become too popular or highly valued.

Master limited partnerships (MLPs)

One-Stop Recommended PortfoliosAlternative Funds

RW Recommended Fund NTF Funds* ETFs Fidelity Price Vanguard

DoubleLine Floating RateDoubleLine Floating Rate N

First Trust Senior LoanFloating Rate HI

Floating Rate N/A

Cohen & Steers Realty Shares

Cohen & Steers Realty Shares

iShares C&S REIT Real Estate Inv Real Estate REIT Index

Leuthold Core InvestmentLeuthold Core Investment

N/A N/A N/A N/A

Price Latin America Price Latin America iShares Latin American 40 Latin America Latin AmericaEmerging Markets Stock

WCM Focused Int'l GrowthWCM Focused International Growth

iShares MSCI ACWI Global Equity Europe Europe

JPMorgan Alerian MLP ETN N/A JPMorgan Alerian MLP ETN Select Energy New Era Energy

iShares Gold Trust N/A iShares Gold Trust N/A N/A N/A

iShares Commod. Select Strategy

BlackRock Commodity Strat

iShares Commod. Select Strategy

Commodity Strategy

New Era N/A

IBM, Verizon, AT&T N/A iShares Telecomm (IYZ)Select Telecomm

Media & Telecom

N/A

DoubleLine Income Solutions N/A N/A N/A N/A N/A

*Not all NTF funds listed are available from all the NTF programs. Some are more restrictive than others, and some funds do not want to be available on all the NTF programs.

Simplify your investment life and probably improve returns for concentrating your investments at one or two mutual fund firms or brokers. It will be easier to track and manage your portfolio. The One-Stop Portfolios let you follow our margin-of-safety investment approach at the major fund companies and No Transaction Fee (NTF) broker programs. There is not always a good alternative to one of my recommended funds. Those cases are indicated by "N/A" in the table. In those cases, consider paying a fee to invest in my recommended fund or opening an account directly in that fund.

Portfolio PerformanceSector Balanced Income

GrowthRetirement Paycheck IWW ETFs

One Month -0.64% 0.01% 1.51% 1.26% -0.66%Year to Date -0.54% 0.37% 1.43% -0.27% 6.67%Last 12 Months 6.77% 8.13% 6.97% 0.91% 4.63%3 Years* 6.37% 6.17% 4.91% 4.96% -5.99%5 Years* 5.18% 4.30% 3.64% 5.71% -5.35%10 Years* 3.47% 2.57% 3.66% N/A 2.78%Compound Return 391.74% 352.05% 68.37% 70.59% 69.26%

*Annualized. Returns are as of May 31, 2018. The Income Growth Portfolio was begun in July 2001. The Retirement Paycheck Portfolio began Dec. 2010. The IWW-ETF Portfolio began December 2005. Other portfolios began Jan. 1995.

Our portfolios were mixed in May, with Latin American stocks holding down returns in several of them. Balance and diversification, along with risk management, continue to pay off across the board.


continue to recover, and we own them through JPMorgan Alerian MLP ETN (AMJ). This exchange-traded note (ETN) pays investors the total return of an index of the 50 largest MLPs and also makes periodic interest payments based on the yield of the index.

MLPs had a tough time during the energy bear market of 2014-2016. They began to recover with energy prices, but tumbled again in 2017 and early 2018 as many MLPs reduced distributions and took other steps to adapt to the new business envi-ronment. But they’re finally moving higher. AMJ is up 2.71% in the last four weeks and 5.11% in the last three months. It’s down 0.30% for the year to date and still is down 3.16% over 12 months. The yield is 5.16%.

MLPs should do well, as long as the economy is growing.

Investors continue to be attracted to DoubleLine Income Solutions (DSL). I think of this closed-end fund as the best of DoubleLine. The fund can invest in any fixed-income investment in the world and also can use leverage. Currently, it has about 45% leverage.

DSL minimizes interest rate risk by taking primarily credit risk and reducing the duration of the bonds it owns. For a while it has owned mostly high-yield bonds and emerging market bonds. The emerging market bonds are dollar-denominated to avoid currency risk. The fund should do fine as long as the economy is healthy but could experience prob-lems in a recession.

The share price of the fund is up

0.65% in the last four weeks and 4.23% for the year to date. But the holdings of the fund haven’t done as well. They’re down 0.44% in the last four weeks and 1.16% for the year to date.

That means the discount of the share price to the net asset value is shrinking. When we purchased the fund, it sold at more than an 8% dis-count to net asset value. For the last year, the discount has been shrinking and recently was down to 1.60%. I continue to recommend holding DSL but am monitoring it closely and looking for alternatives.

Our three stocks with high dividend yields bounced higher with the stock indexes in the last month.

Verizon (VZ) is up 4.59% over four weeks but still is down 4.86% for the year to date. The yield is 4.77%. Our other telecommunications compa-ny, AT&T (T), is up 6.72% over four weeks but is down 10.42% so far in 2018. The yield is 5.85%. Each com-pany is a big beneficiary of tax reform and is selling below both the average market valuation and its own long-term valuation. I expect the stocks to trade within their current ranges at worst, and the dividends should increase regularly.

We also own IBM (IBM). The stock was off to a good start for us but retreated after its first-quarter earn-ings report disappointed investors. I believe the investments the company made in new products and services in recent years are beginning to pay off. It won’t be a smooth ride, but we should see improvements over time.

The stock is up 3.29% in the last four weeks but is down 2.74% for the year to date. The yield is 4.15%.

TRUE DIVERSIFICATIONThe True Diversification portfolio

continues to perk along. Longtime readers know that this

portfolio provides more diversifica-tion than traditional portfolios, which tend to be closely tied to the U.S. stock indexes. This portfolio holds funds that generally have much lower correlations with the major stock indexes and with each other.

At any time, some funds are doing well while others aren’t. The result is a much smoother ride than with traditional portfolios and returns comparable to the S&P 500 over the long term. We lag the market index-es and traditional portfolios during strong bull markets, as we’ve seen the last few years, but we lose much less, and sometimes have positive returns, in market downturns.

We took the in-depth look at the portfolio last month that we conduct every three months. This month, the laggards are William Blair Macro Al-location (WMCNX), which has been hurt by exposure to emerging markets and currencies, and Price High Yield (PRHYX). Strong performers have been Cohen & Steers Realty Shares (CSRSX) and Oakmark (OAKMX).

INVEST WITH THE WINNERSThe portfolio made a timely shift

last month to PowerShares QQQ Trust (QQQ) from iShares Latin American 40 (ILF). QQQ is up


Robert C. Carlson wrote the book on retirement and retirement planning—twice: The New Rules of Retirement (Wiley, 2nd ed. 2016) and Personal Finance after 50 for Dummies (with Eric Tyson; 2nd ed. 2015). He also serves as Chairman of the Board of Trustees of the Fairfax County (Va.) Employees’ Retirement System (a more than $3.0 billion portfolio) and served on the Board of Trustees of the Virginia Retirement System (a $42 billion portfolio in 2005) from 2000-2005. He was educated at the University of Virginia School of Law and McIntire School of Commerce (M.S.) and Clemson University.

Challenges Investors Face: The TJT Solution to Portfolio Management Many investors need help with their portfolios. We saw that with the strong registration and turnout for the webinar featuring Bob Carlson and TJT Capital, “Challenges Investors Face: How TJT Capital Manages Portfolios to Participate in Bull Markets and Protect Capital in Bear Markets.” The webinar is available for replay at www.tjtcapital.com. If you like Bob Carlson’s margin of safety approach and methods of selecting mutual funds, log in or contact TJT Capital at 877-282-4609 or [email protected].

5.04% in the last four weeks. There is no change to make this month ac-cording to models I use to select the one ETF with high recent returns that

are likely to be sustained. By the way, the name of the fund has changed. A while back, Invesco bought Pow-erShares and now has changed the

names of all PowerShares funds. The ticker remains the same, but the fund now is known as Invesco QQQ.

The Aging ExcuseThis year, my

annual golfing weekend with my friends from law school was

held at The Greenbriar in West Virginia (self-styled as “America’s Resort”). We had a full schedule of golf set for Friday through Sunday, but the weather upset our plans. Anyone who lives in or visited the mid-Atlantic and South during the spring of 2018 knows there was far more rain than usual, much of it in the form of heavy thunderstorms.

We enjoyed a good round in pleasant weather on Friday. We were making it through Saturday’s round in intermittent light rain when lightning appeared not too far away. We all headed back to the clubhouse right away. Torrential rains the rest of the day and into the night were so heavy the course was closed for

Sunday.Though our golf plans were

upset, we all still had a good time. There were plenty of other things to do. We shifted gears, made some choices and enjoyed the rest of the weekend.

It’s a good lesson for your per-sonal finances. Set a plan based on what’s likely to happen. But realize that things could turn out differ-ently than you planned. Sometimes they’ll be better than expected, and sometimes they’ll be worse. Have flexibility and back-up plans. De-cide in advance what will make you change plans. Monitor the situation and make changes as needed.

That wraps up this month’s is-sue. I’ll be spending part of this summer monitoring the markets and economy, what’s happening in Washington and developing my own research. Then, I’ll be back next month to report on the latest

recommendations to enhance your financial independence.

P.S. You shouldn’t miss my detailed semiannual review of the economy and markets in the June edition of my new Spotlight Series of online seminars. Because many Retirement Watch readers benefit from this series each month, you’ll want to join these monthly webinars that you can enjoy from the comfort of your home or office whenever you choose. To learn more about the Spotlight Series, go to the top of the RetirementWatch.com home page, and select the Spotlight link.

Retirement WatchBOB CARLSON’S Strategies for a Secure Future

To My Heirs: A Book of Final Wishes and Instructions My Two-in-One Workbook

You Can Lock in the Forgotten Feature of Most Retirement and

Estate PlansAll plans need it. Few plans have it. Yours can have it now.

Change can be an opportunity. Or it can lead to hardship. The difference often depends on how well you and your loved ones adapt and adjust. You know big changes are on the way for your retirement plan, your estate, and the investment markets.

You must be prepared to seize new opportunities or overcome adversity. With financial matters, you have an advantage when critical information is at your fingertips. Many people fail to make decisions, or make them late, because it takes too long to assemble the information they need. Often, they simply procrastinate because the information-gathering process takes too long.

It is especially important for heirs to have your financial information readily available. Many decisions need to be made when processing an estate. Delay often costs money. Decisions made without all the facts can be wrong – and expensive.

It’s the best gift you can leave to your heirsI’ve said many times the best gift you can leave your heirs is a book of key financial and personal data. Your executor needs to know all

the details about your finances – which accounts you own, key facts about them, and where to find the paperwork. Loved ones also need to know about your debts and other assets you own, such as real estate, businesses, even hobbies and collections.

Yet, few estate planners encourage providing this information as part of the plan.

That’s why I created what’s become my most popular report, To My Heirs: A Book of Financial Wishes and Instructions. This workbook helps you gather all the facts in one place. It begins with suggestions and instructions. As you read through the workbook, the pages prompt you to complete all the information you and your heirs need.

The workbook also has additional tools. I include a “My Survivors’ Checklist” and “Estate Processing Checklist” to guide heirs when you aren’t around. I also explain how you can maximize the benefits of the workbook, such as by supplementing it with copies of key documents.

A guide for your heirs is a key and necessary element of every estate plan.

Bob Carlson’s RETIREMENT WATCH

Most people think that a will or living trust does the job. But those documents, while essential, only do part of the job. To wind up an estate, a number of people must be contacted. An inventory of assets must be assembled. Debts have to be listed and paid. Someone has to decide how to manage the assets. You might know exactly what there is and what to do, but you won’t be around to tell anyone. That’s why you should leave a clear record with all the details.

It’s also the best way to organize your financial life today

You, too, gain immediately from having this and other information in one place. No more trying to remember or find details such as account numbers, phone numbers, web addresses, or looking for other key information.

When you don’t have an estate plan yet or need to update one, this workbook saves time and money. You and your estate planner will develop a better plan at a far lower cost when you complete the workbook first and gather the suggested documents. Give the package to your estate planner, and you’ll be farther along than most people, saving a lot of fees.

The workbook also helps in your daily financial decisions. All the basic information about your accounts, assets, and other financial matters is in one place. You won’t spend time hunting through files or papers for account numbers and contact information. Your time will be spent making decisions and managing your finances.

Make the road smoother for you and your heirsWith my workbook, To My Heirs, your heirs will know exactly where to find everything they’ll need, and then some. They’ll know whom

to contact and what to ask. All that will save a lot of time and anguish plus legal and accounting fees.

Download a copy of To My Heirs, a 22 page PDF file, now for only $24.99.

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Documents

Strategies or a Secure uture Retirement WatchBOB CARLSON’S · 2019. 6. 14. · plan. If you can’t pull a complete plan together right away, at least do the mini-mum necessary,