Three Model Portfolios Designed to Help You Sleep Well At Night

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Monday, December 29, 2008


The decision of where to live in retirement can be one of the most important ones you make. Obviously, the decision is an important one in terms of the quality of your life where factors such as proximity to family, recreational opportunities, and even weather can play a role. However, deciding where to live in retirement also can have a significant impact on your financial well-being. We at The Retirement Advisor have found that very few investment advisors address this issue and thought our subscribers would benefit from a discussion of this topic. This month, we tackle the issue of taxes and retirement.

Income Taxes

It is no coincidence that Florida remains one of the favorite states for retirees. In addition to the warm and sunny weather, Florida does not have any income tax on earned income or unearned income such as interest and dividends.

When you are in retirement, interest and dividends can be a key source of money that pays for your living expenses. The less of your interest and dividends that goes to pay taxes, the more that you get to keep and spend in retirement.

There are seven states in the United States that do not levy an income tax on earned and unearned income. These states all provide a possible starting point in formulating a decision of where you might want to spend your golden years. The seven states are:

• Alaska
• Florida
• Nevada
• South Dakota
• Texas
• Washington
• Wyoming

Two others, states, New Hampshire and Tennessee do not levy tax on earned income; nevertheless, they do levy taxes on unearned income and dividend income.

The Federation of Tax Administrators has compiled a detailed analysis of each state’s individual income tax rate and it is now available online. The information includes the tax rates, the income brackets and personal exemptions. The information was just updated and is current for tax year 2007. We recommend that our subscribers bookmark their web site which you can find at the following URL:

Sales Taxes

Even if your income is not subject to state income tax, or your state has a low income tax rate, it doesn’t matter too much if what you purchase with your money is subject to high sales taxes. After all, in retirement, you are now spending the money you previously saved and you want your dollar to go as far as it can.

State sales tax rates can range dramatically. There are only five states that have no state sales taxes, including Alaska, Delaware, Montana, New Hampshire and Oregon. On average, most states levy a sales tax of around 4-5%. However, at least five states have sales taxes that are 7% or higher, including California, Mississippi, New Jersey Rhode Island and Tennessee. A few states have exemptions on sales taxes for such items as food, prescription drugs and non-prescription drugs. The following URL will bring you to a web site that shows a state-by-state breakdown of sales taxes:

Individuals approaching or in retirement, should also be aware that many states have tax “holidays” each year. In 2007, for example, Alabama, Connecticut, Georgia, Florida, Iowa, New Mexico, North Carolina, South Carolina, Tennessee, Texas, Virginia and the District of Columbia all designate specific dates (usually in August) where consumers can purchase various items without paying sales tax. Typically, the tax holiday applies to items such as clothing, school supplies, and computers. For many
consumers, waiting to purchase these items until a tax holiday represents a significant savings, although most states do place a cap on the amount you can purchase during the tax holiday. Nevertheless, a penny saved is a penny earned. You can find a table of each state’s tax holidays and information about what is covered at this URL:

State Taxation of Social Security and Pensions

For many individuals in retirement, their pensions and social security can account for a significant portion of their retirement income. Ten years ago, the AARP (formerly named the American Association of Retired Persons) Public Policy Institute prepared a brief that addressed the personal income tax treatment of Social Security benefits and pension income for the 41 states and the District of Columbia that have a broad-based income tax. That publication was updated in 2001 and subscribers can use it to help them make decisions on where to retire based on differences in tax treatment. Subscribers can find the publication by going to the following URL and clicking on the section entitled, “Issue Brief (PDF)”:

Copyright 2007-2009 The Retirement Advisor, L.L.C.

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Sunday, December 28, 2008

Current US Treasury Rates

Rates for US Treasury Bonds, Bills and Notes as of 12/28/08.

10-Year3.75011/15/2018 2.13
30-Year4.50005/15/2038 2.61

US Treasuries are backed by the full faith of the US Government and its ability to tax.

Sunday, December 07, 2008

December 2009 Update

Looking Forward and Back The stock market staged a nice rally of over 19% as measured from the bear market lows that occurred on November 20, 2008. From its record high on October 9, 2007, to its low this year of 752.44 on November 20th, the stock market declined 52% from its all time high value, bringing the index to its lowest level since April 14, 1997. There remains an incredible amount of volatility in the market.

Subscribers are reminded that even bear markets can produce powerful moves to the upside such that if you need to rebalance the equity side of your portfolio and move more to the fixed income side, it is always better to sell into strength.

During November, Treasuries posted their biggest monthly gain the 1980s. Underlying the unusually strong demand for U.S. government bonds is the fear factor as investors look for the safety of a bond that is backed by the only entity with a legal printing press. Also contributing to the surge in Treasuries is a decreased fear of inflation.

As we head toward the end of calendar year 2008, we are reviewing the holdings in our model portfolios to determine if rebalancing, or a substitution would benefit our subscribers going forward.

Interest rates for “safe investments” are near record lows. The three-month Treasury bill is only paying 0.04% interest. [See US Treasury Rates at a Glance] After commissions, you could lose a little bit of money as investors are more interested in “return of assets” than they “return on assets.” We recommend CDs with FDIC insurance over US Treasuries at this time. We may move our bond funds to CDs for 2009.

The Retirement Advisor Portfolio

Value on 11/30/2008


Model Portfolio 1



Model Portfolio 1



Model Portfolio 1



DJIA 12,501.52 on 1/1/2007



S&P500 1,418.30 on 1/1/2007



The Retirement Advisor Model Portfolios all began with $200,000 on 1/1/2007

Inside This Issue


Looking Forward and Back


Social Security Payback


Certificates of Deposit


Federal Reserve, US Economic Growth


Economic Outlook & US Treasury Rates


Model Portfolios


Recommended Mutual Funds


Subscriber Information