Jason Parker Interviews Susan Garland who is the editor of the Kiplinger Retirement Report.  We discuss dividend investing, retirement income, annuities, a bucket strategy for retirement income, tax planning and taking a trip with the grandkids.

Below is the full transcript:


Announcer: Welcome back, America, to Sound Retirement Radio where we bring you concepts, ideas, and strategies designed to help you achieve clarity, confidence, and freedom as you prepare for and transition through retirement. Now, here is your host, Jason Parker.

Jason Parker: Seattle, Tacoma, Olympia, Gig Harbor, all the good people right here in Kitsap County, welcome back to another round of Sound Retirement Radio. I sure appreciate you tuning into this lovely little program. As always, we want to bring guests onto this program who we believe can add real significant, meaningful value to your financial life. We have one of those people on the program with us today.

 For the last several weeks, I’ve been starting the program off with a joke. I’ve got one for you. Actually, my mind went blank. My son told me a joke this morning and before I got to the studio, I thought I had one prepared for you, but it’s totally slipped my mind. I guess you’re not going to get a joke this morning.

 Anyhow, I have Susan Garland on the program. Susan is the editor or Kiplinger’s Retirement Report, a monthly personal finance publication who’s subscribers are retirees and those approaching retirement. The publication covers all topics related to retirement, including investments, taxes, social security, pensions, personal money management, annuities, estate planning, healthcare, and leisure activities. We’re going to cover a couple of those topics in today’s program. Susan Garland, welcome back to another round of Sound Retirement Radio.

Susan Garland: Thank you very much for having me.

Jason Parker: Yeah, it’s good to have you back on the program. The first thing that caught my attention, Susan, is you folks recently did an article on dividends. Dividends, what I find is there’s a lot of people out there right now that are very interested in income. With interest rates on bonds right now being so dismal, a lot of people have started moving more to a dividend portfolio. Talk to us a little bit more about dividend stocks and what people should be thinking about with those positions.

Susan Garland: Well, one thing they should be thinking about when investing in dividend-type stocks is that they cannot look at these stocks as substitutes for bonds. The yield on many of these dividend payers are higher than the bond market right now. That may change as rates rise, but the stock market generally is more volatile than the bond market. Even though dividend payers are less risky overall than the overall stock market, they’re still more risky than the bond market. The first thing people have to realize is, don’t start moving all your money out of the bond market into dividend payers because those dividend payers could be into a shock as well, especially as interest rates rise. You may think that interest rates will only have an impact, maybe on your Certificates of Deposit and bonds, but they will also have an impact on your dividend payers, too.

 What’s been happening is that … People should be really focusing on future dividend growth and not on the big yield. Right now, people … A lot of the stocks have been trying to boost their yield to compete with bonds. They have become very pricey, and investors have been gorging out on the highest yields they can find. Also, when you see a high dividend yield, that may indicate trouble. So yield, you’re looking for the best yield, but if you have a really high dividend yield, that could indicate that the market has already cut down the price in anticipation of a potential dividend cut or some other problems. In the future, look for dividend payers that are focused on growing their dividends. If you want, I can give you some ideas of sectors that you … And some stocks that we have recommended over the past couple of months if you’d like, Jason.

Jason Parker: Yeah, I think that’d be good to get some actual tips for our listeners. One of the things I’m looking at here, Susan, as you’re talking, I just pulled up the yield on the ten year treasury. Right now, 2.84%. That’s pretty darn lousy.

Susan Garland: Yeah.

Jason Parker: Somebody buys a dividend-paying stock today. Let’s say it’s paying 3%, 3.5%, or a portfolio of dividend-paying stocks. If all they’re interested in is the income. Let’s say they’re not worried about the volatility of the actual portfolio. The reason I say this is I met a gentleman once and he said to me, he said, “Jason, look.” He happened to buy utility stocks. He said, “Why do I care what the stock is worth?” He said, “If I buy the dividend, the utility stock that’s paying a 5% dividend, and they continue to pay 5% for as long as I’m alive, and I’m happy with the income, and I don’t really care about the price of the stock itself, why not just buy the dividend portfolio for a better yield than you can get on a ten year bond?

Susan Garland: You can do that, but it is sort of risky. When you look at the total return of your portfolio, the value of that stock could be going down over time. You get this high yield, but the value, the share price is going down, so the value, if you want to leave anything to your kids, you may have some income but the value of that portfolio will be lower. At some point, if you have a very high yield, as I said before, that could be a sign that that stock could be in trouble down the road. You really need to have some kind of balance here. Don’t look for the yield that’s 8%. 2% for dividend-paying stock, you have that 3%, the income, and if you really need more income, you can diversify into other things, but you could always sell parts of that stock on the market and pull out some of the actual principle of the stock as well. I’d be really careful about looking for something that … We always say, “The high returns, high risk. High yield, high risk.” You really have to balance it.

 Right now, we’re looking at sections that are doing well in this rising rate environment. Basically, rising rates go hand-in-hand with economic growth. We’re looking at companies that are in the cyclical growth-oriented sectors, such as technology and industrials. Utilities, communications, not doing that great as far as being vulnerable to higher rates. Technology, as you know, has not been a traditional divided payer, but looking at companies like Microsoft and IBM, they have great … Well, IBM has been a dividend payer … Great cash flow. Intel has some decent dividends, it’s server business is doing well. Apple just paid a dividend for the first time last year and it boosted it this year, so that’s another possibility. Financials, of course, what a nightmare a few years ago and what a difference a few years make. Financials have been making a comeback, like Wells Fargo, as far as dividend payers.

Jason Parker: What’s the dividend look like on Wells Fargo? Any idea what it is currently?

Susan Garland: Well, right now we don’t know what the current dividend is. The yield is 2.5%, at least a couple of months ago. I haven’t looked at it recently, but it’s not a great yield, but okay. You can put together a package yield of dividend payers that will give you a certain advantage. If you need, this is part of your income strategy, you try to figure out what kind of income that you need every month and then beat them. Dividend payers often pay out, what? Every three months or so? You could set up a schedule. Look for dividend payers that pay out.

 We had this in one of our old issues where we put up a full year’s worth of payouts. You could do this yourself, if you need a dividend of a certain amount every month, then you maybe get a few stocks that pay out in January, a few stocks that pay out in February, and so forth down the year. I wouldn’t recommend all of your income coming from dividend payers because you want to diversify, but you can get a certain amount from your dividend payers and have a steady income flow every month. That’s one way of doing it.

 If you’re a little worried about investing in individual stocks, you could go with some mutual funds, especially Exchange Trade, the funds have very, very low fees. One is Vanguard Dividend Appreciation. Those have a focus on companies that have raised their dividends for at least ten consecutive years. That’s another point. You want to make sure that, as I said before, look for that growth. Look for the reliability, not just the yield. You want to know that the company has a history of paying dividends and maybe boosting their dividends every year for ten to twenty years because if you’re looking at … And maybe Apple’s an exception, perhaps. You’re taking a chance. I wouldn’t bet my farm on Apple, but you want to look, not just at yield which is because it could be knocked down in some kind of terrible situation if the sheer price goes down at some point. Companies that have boosted their dividends over a period of time.

Jason Parker: And have that track record. A company that says, “Look, we’re committed to this for the long haul.” Really, once a company starts paying a dividend, it doesn’t look too good for a company to cut a dividend.

Susan Garland: Definitely. A lot of these companies have been around for quite a while and have been paying dividends. I forget what it’s called. I can’t remember if it’s a standard of poor service, Aristocrats, but there is a group of stocks that are in sort of the top payouts … Not the top payouts, but one that … I’m looking right now for the website where, these have been dividend payers that have been paying out for many years. Okay, this is the S&P 500 Dividend. I’m just looking for this. Dividend Aristocrats. These are companies that have been paying out for many years and have been raising their dividends over time.

 You want to look for those old, reliable companies. McDonald’s is one of them for sure. Johnson & Johnson, Kimberly-Clark, a lot of the consumer-stable companies have been really good at this.

Jason Parker: Okay.

Susan Garland: Those are the companies you want to be looking at.

Jason Parker: That’s a great list for our listeners to get started on. As always, the Kiplinger Retirement Report is a great resource. Susan, we’re going to be back in just a minute to talk some more about retirement income. Not just dividends, but some of the other things people should be looking at.

Susan Garland: Sure.

Jason Parker: All righty, folks. Welcome back to another round of Sound Retirement Radio. I am your host, Jason Parker. It is my good fortune to have Susan Garland on the program with me today. Susan is the editor for the Kiplinger Retirement Report, a monthly publication covering personal finance and retirement-specific issues. I tell ‘ya, as I was looking through this last Report that Kiplinger sent to me, really some great ideas in here. Ease away from work and retirement. Some ideas for, maybe instead of just jumping boat all-together and going fully into retirement, look into your employer to see if there might be an opportunity to start phasing out.

 A couple of little tips in here, Susan, I noticed on the new heath insurance rules and how that’s going to affect people. I read about how some pension plans were looking to shift some of their obligations to insurers. One of the other things that really caught my attention was some of the tax stuff you were talking about. Before we get into some of these other topics, on this topic of retirement income planning, this is really a challenging world that people are retiring into today. It used to be that people would have a pension, they’d have their social security, and then they’d buy a basket of maybe 60-70% bonds and some stocks and they’d live comfortably between the dividends, the interests, and their guaranteed income sources. That world really has changed. A lot of people don’t have pensions, and social security, of course, there’s some opportunities there to maximize income.

 As you listen to the feedback from your readers, and you’re talking about retirement income, what should people be thinking about? How should they be thinking about portfolio construction at this point as they get ready to transition into retirement?

Susan Garland: One of the things people need to realize before they retire and then maybe a few years before they retire is to really figure out what you have. Also, maybe try to even come up with a retirement budget so you know what you may be spending in the future and what you need, and sort of put together a list of everything of what you can expect, and then the first thing you should be looking at, then, is also what your fixed expenses are. It’s really important to know that. What your utilities can be over time, what your medicare premiums. Obviously things are going to go up with inflation, that the healthcare is a big factor. It is not hard to understand why some people are saying that an average 65 year old couple have spent $220,000 over their lifetime on healthcare expenses because your medicare premiums are pretty big every month. The utilities, your clothing, your food, try to get a really good sense of what those expenses will be and could be, taxes, property taxes-

Jason Parker: Yeah, that’s a …

Susan Garland: I’m sorry?

Jason Parker: Well that’s a great tip, this idea of coming up with a budget. Do you have a specific tool that you like to recommend people for budgeting?

Susan Garland: I think they have a tool on Kiplinger.com. Another one that we always recommend is mint.com. It’s a really great resource. You could play around with all these different things and they just make life really easy for people who really want to get down and dirty with their budgeting. Once you have … Because sometimes people just go into retirement blind. They don’t quite know what they have, they have some big number, and they don’t know quite what they’ll be spending. Sitting down and really trying to come up with what your fixed expenses you know you’re going to have. Look over your credit card bills, what you’ve been spending. Figure out what you could cut out. Just, it’s not going to be really … Obviously you got to have some flexibility, but once you come up with that number, then you look at what your fixed income will be. What do you have? A pension plan, and how much, maybe some … “Oh, I have an old pension plan from years I worked for Business Week. It’s not huge, but hey, I’ll take that money.”

Jason Parker: Every little bit counts.

Susan Garland: At least I know that’s coming in. Also, look at what your social security benefits will be. Add that, maybe you’ve got some rental income coming in. You try to match up what your fixed expenses will be with your fixed income and see what that gap will be. Obviously, as I said, with inflation, you’ll have to figure that in. Then, you start playing around.

 Maybe what you do is you buy an immediate fixed annuity when you retire to fill that gap in. A lot of people don’t like immediate annuities. Interest rates are very low right now, they’re not a great deal, but what you do is that you invest, perhaps, $100,000 or $50,000. There’s a great site that will give you an idea of how much … If you need to fill in $200 a month or $1,000 a month, then you go onto this immediateannuities.com and it gives you an idea of how much you would have to invest to sort of fill that gap. Otherwise, what you’ll need to do is fill the gap some other ways. Maybe that’s where those dividend payers come in. Maybe you come up with a bond portfolio that will give you a certain amount of income to fill in that gap.

 What a lot of people are doing these days, and it’s a great idea, they do what’s called a bucket strategy. What they do is they say, “Okay, the stock market … I’m afraid of retiring.” Just as the stock market declines, a lot of people … 2008, they had just retired, all of the sudden the Great Recession hit. Once you start pulling money early on during a market downturn, you never quite make it back again.

 What people are often do, is they set up a few buckets. You have your cash in one bucket, like a year’s worth of expenses. You know, maybe two years. You don’t want to go too much because of all of this opportunity cost of not using that money. Invest it. A second bucket may be of longer term. The first one’s cash, short term bonds, Certificates of Deposit. Second one might be intermediate bonds, something with a little bit more longer term, five years. The last are more your growth stocks. You’re pulling out of your cash in case there’s a market downturn. That way you know the money is there. You can live on it and not worry when the stock market goes down that you’re going to be having to pull out of the market when those stocks are going down in value.

 Then, what happens, you star replenishing each bucket. You re-balance your portfolio, your stock portfolio, your taking some profits, and you take those profits and maybe put them into the intermediate/mid-level bucket. Then you take profits from the middle, some of the bonds you have in there, you stick it in cash. Then you’re always sort of living off of that cash portfolio. Then, you let the others sort of ride a little bit. Then you’re not a wreck. You want to have a sort of a sleep-well-at-night, a swan strategy so that you’re not up half the night thinking, “Oh, my goodness. I’m pulling out. The market’s down and I have to sell these stocks that are declining.”

Jason Parker: It sounds like it can get pretty complicated and require a lot of work. What do you say to people that just, that’s not how they envision their retirement. They don’t want to sit around and do all this work that you’re talking about?

Susan Garland: Well, there are a lot of people out there who are the do-it-yourself, the DYIers who love to do this. We get calls from our readers with their spreadsheets and so forth. Just at least to set it up, I always recommend that people get some help with a certified financial planner, a fee-only person, who wants least. A lot of them want to manage your money, take 1% out of your portfolio. A number of planners will sit down with you for a few hours and at least set up the structure of your portfolio.

 Make sure that you’re well diversified. Make sure you’re in low-cost funds if you’re going the fund route. Make sure that you know how to pull the money out over time. It can be complicated to do. You can buy a few hours and go in maybe every six months, get a check up, make sure you’re on the right track. What you don’t want to do is you don’t want to be buying and selling all the time. You want to be able to sort of structure a portfolio that you’re comfortable with. Then, you want to not buy and sell because then you’re trying to time the market.

 What researchers have found is that over periods … I forget exactly the numbers, but people over a period of time … The stock market can go up like whatever, 100% over twelve years or ten years and people only make 2%. That’s because what happens is the market starts going down, people panic, they sell, then the market starts going up and they get back in. What have they done? They’ve missed steps, sort of boosted the market. They have sold low and they have bought high, and that is exactly the opposite of what you want to do. I think a planner, somebody who will give you help, not sell you products, not make a commission, not sell you insurance, but just to guide you. Set up that portfolio, set up maybe an automatic withdrawal of certain parts of your portfolio. Make sure that everything is well allocated and calibrated. It’s really worth money for people who don’t know what they’re doing.

Jason Parker: I want to ask you. I think that’s some great advice. I want to ask you about, you know you listed a bunch of different tools that people use to fill that gap. You said bonds, and dividends, and stocks, annuities, buckets. You use a bucket strategy so you have all these different tools across all these different segments or buckets.

 Just a moment ago, we were talking about the ten year yield on treasuries. I noticed they are 2.7%. We had a person recently bring to our attention, they were looking at a deferred fixed annuity contract that was paying 2.85%, fixed for five years. If somebody is sitting here and they’re looking at a ten year treasury bond that’s going to pay 2.7%, or a five year fixed deferred annuity contract issued by an insurance company, why would you … What are your thoughts about those two options that people would have available?

Susan Garland: Well, the deferred fixed annuities have become very popular. We’ve written about them. They’re very interesting, actually. They’re like, you have the immediate fixed annuity, which is what we were talking about. The deferred one is what you do is you invest your money now and you let it grow over a period of time. Let’s say five years out, you start pulling the money out of it in sort of payments.

 There are a lot of companies that are getting into it. I really would be careful. You need to look at what those costs are going to be because they are commission-based. You’re going to be paying some money for their commissions, but you do have … There’s an underlying investment. Find out if you could pull that money out with an immediate fixed once you put that money in. That’s it. It’s gone and you hope that you live a long line. The deferred fixed, I’m not sure exactly what the rules are. There may be a way to get at least part of your investment back over time if you change your mind, but it’s something people are going to be looking at. I think annuities are going to become much more important in people’s portfolio over time because people need a guarantee that they are on portfolios that last thirty years or more. People are going to be moving into their nineties.

 A deferred fixed annuity is something that people should be taking a look at, seeing how … Maybe start looking at one at the age of fifty-five so that when they’re sixty-two. Get some idea of how it works and make sure you understand there are a lot of moving parts to these things. Make sure you understand how that return works, are there any surrender fees, what the commissions are, and if you can get your money back, and what the guarantees are. Whether you are going to benefit from the upside of the market and whether there is a floor below which you cannot go. Some of these annuities, if the market rises, you automatically get a higher guaranteed payout that doesn’t go back down, even if the market declines. You really need to figure out exactly how it works. Read that perspective. It could be twenty pages, but it’s really worth looking at. Compare a bunch of different ones out there, [New York Wife 00:26:32] has one. I’m talking about the deferred fixed. I’m not talking about about the variable annuities.

Jason Parker: The variable. Right. We need to take our next commercial break. We’ll be right back in just a minute.

 All righty, folks. Welcome back to another round of Sound Retirement Radio. I’m your host, Jason Parker. I have Susan Garland on the program with us. Susan is the editor for the Kiplinger Retirement Report. We’re talking about dividend paying stocks. That’s how we started the conversation off, kind of transition into retirement income planning. Susan was giving our listeners some tips if you’re looking at annuities and how they fit into your overall, as she call it, bucket strategy. Susan, I’m sure people out there want to learn more about the work you folks are doing. You guys have been doing this for a really long time now. How long has the Kiplinger Retirement Report been going?

Susan Garland: I’ve been here eight years come January and I think we’ve been around fifteen, sixteen years. It’s been quite a while. I think it’s really a help, if I just say so myself. A little self-serving. We come out every month, it’s $30 a month, sixteen pages of advice on everything from how to take distributions from your IRAs, how to set up portfolios, where to put your cash, just medicare rules, and so forth. I really is a very helpful publication, I think, on really the nitty-gritty of retirement planning and what to do in retirement.

 We have a story coming out next month, which I probably shouldn’t talk about, but it looks at basically those things think outside the bag to boost yields. We go through all these different ideas of where you can find yields up to 2%, yields between 2% and 3%, yields between 3% and 5%, yields from 5% to 8%, and yields of more than 8%. If you want me to throw out some for you right now …

Jason Parker: Well, yeah. I’m curious and also, maybe, as you’re kind of going through these different yield plays, also. Obviously a bank is going to be safe, secure, FDIC insured in most cases. I’m assuming, are we having to take more risk in order to get this higher yield that you’re talking about?

Susan Garland: Yes. Of course. Every time you go outside the FDIC insured environment, you are taking more of a risk, but when you invested in these stocks you are as well. It’s a question of how much risk you’re willing to take. One thing I’d recommend for people to do is, if they have money in money market funds and they like the money and they like the idea of a money market, take that money out, put it in a money market account at a bank. You will get a higher interest rate on your money market account in a bank than you will in a money market fund mutual fund, which is not federally insured, while the money market account at the bank is. You will get, let’s say, a few. Not a whole lot, but maybe 1% for a one year Certificate of Deposit if you just do the Certificate of Deposit. At a bad point, another percent on the money market account, I believe. It’s much, I want to say, .09 on the money market fund depending on what it is. That’s one thing I would do for sure is get that money in a bank in a money market account rather than the fund.

Jason Parker: What are some of these other ideas? I know you probably want people to read the article, but you’ve kind of got all of our listeners interested here.

Susan Garland: I know, I know. You can still buy it because there will be other great things in the issue. Okay, well once in a while, we do … Let’s see. I have to sort of … We’re talking about, if you want to stay pretty safe, it’s like basically, why lock up if you have a chance at the CD? You could get 2% on the CD, but you’re going to really lock your money up for a fairly long time to get it. If you’re going to do that, you could reach that same level with a low-cost short-term bond fund. Something with maybe two years, low duration, so that as interest rates spike, you won’t lose much of any money.

 One thing, one very short-term bond fund is the [Bear 00:31:18] short-term bond and it yields 1.5%. Hold on for a second.

Jason Parker: Okay.

Susan Garland: Another one is Metropolitan West low duration bond, yields 1.6% with the duration of 1.2 years. You’re not getting a lot, but you’re getting more, you’re not locking up your money either. You’re getting a better yield for very low risk. Still a risk. Interest rates go down, you know, start rising, value of this fund goes down, but it’s a short-term bond and very short-term bonds, they are not as sensitive to interest rate changes as longer-term bonds are. That’s one way to go.

Jason Parker: You know, that’s absolutely true. Boy, we appreciate that, you filling us in there. I remember, I got to tell you, back in 2008, there was a short-term bond fund that we were keeping a very close eye on, very popular. 2008, when the financial crisis hit, the world was going to fall apart, we saw that bond fund drop 10% in a very short period of time.

Susan Garland: Yeah.

Jason Parker: Those were people that were thinking they were in a relatively safe position.

Susan Garland: Mm-hmm (affirmative).

Jason Parker: I would say under extreme market conditions, it is possible … I think that fund came back and they made an okay recovery if you gave it enough time, but boy, there was a time there when people thought they had a certain level of safety and it really got squirrely quick.

Susan Garland: Well, yes. I think those were the ultra-short ones, if I recall. I forget exactly what that was, but if you have duration of, let’s say 1. … Let’s just say, I was looking at the Metropolitan West low duration bond. It yields 1.6% for the duration of 1.2 years. That means if rates go up a full percentage point, your principle should lose 1.2%, that’s the duration. Because it yields 1.6, you still have a net gain. So yes, there’s a risk, but you still could be doing okay. Those are the kinds of numbers you need to be looking at.

Jason Parker: Yeah, and the great thing about the work that you guys are doing is that you’re doing a lot of this research. You’ve got your group of editors and writers that are saying, “Okay, because so many people out … ” I mean, there’s so many people right now sitting on cash, sitting on cash in banks that’s just not doing a darn thing for them. They’re trying to figure out what to do, how to put it to work. You guys, with your thumb n the pulse of America here are saying, “Let’s go out there and find a bunch of these different tools. I think that’s really beneficial. I think that’s great that you’re doing that.

Susan Garland: Well thank you. We are actually having … I’ll plug another Kiplinger publication. This story that was done this month was by this editor, Jeff Kosnett, who actually started a few months ago, a really good newsletter called Investing For Income. It’s all about income. Eight pages every month, I think it’s eight pages. All about dividend payers … Anything that’s throws out income will be inside Investing For Income. If people are interested, I think there’s a sample issue on their website. You go to kiplinger.com. I think you go to the store, and then you can take a look at Investing For Income. You can look at The Retirement Report as well. That publication is all about income for [referred 00:34:52] shares, you name it, it is focused on that.

Jason Parker: Okay.

Susan Garland: Which retirees really crave.

Jason Parker: They do. We’re in a world where everybody wants income and there’s none to be found, just about, it seems like.

Susan Garland: Yeah.

Jason Parker: What about your Kiplinger Retirement Report? If people want to sign up for that, is it only distributed as a newsletter that comes in the mail? Can people get this on their iPad now? What are their options?

Susan Garland: Hmm, iPad? I’d have to check into that, but when you buy Kiplinger’s Retirement Report, you can … It’s automatically sent to you in paper, but you can sign up for an online distribution. The beauty of that, it comes out several days earlier than you’ll get it in the mail. Once we send it up to the printer, we sent out a notice to our subscribers, “You can see this online.” We have indexes for, every year, I think, back to 2005 and copies of it. If people want to look, they can do a search. They could look on our website. It’s all password protected and so forth, so everybody else can’t see it. They can look at every past issue we’ve ever done or at least have ever done since 2005. That’s another benefit. For $30, I think it’s great.

Jason Parker: I think it’s great, too.

Susan Garland: Thank you.

Jason Parker: Yeah, so for our listeners, they just go to Kiplinger, go to the store and look for The Retirement Report.

Susan Garland: Yep.

Jason Parker: Susan, I can’t believe we’re right there again, but we’ve got to take another quick break and we’ll be back in just a moment.

Susan Garland: Sure.

Jason Parker: All righty, everybody. Welcome back to another round of Sound Retirement Radio. I’m your host, Jason Parker. I have Susan Garland on the program with us. She’s the editor for the Kiplinger Retirement Report. Susan, the … Kind of switching gears here a little I bit off of these different financial tools, and products, and strategy, and allocation, and all these different things to something a little bit more fun. Actually using the money to have an impact. You guys had an article here that I thought was interesting called, Take A Road Trip With Your Grandkids. Tell our listeners a little bit more about this article.

Susan Garland: You see a lot of the baby boomers, especially, who want to spend some time with their grandkids. Well, older people as well, I should just say, the baby boomers. They’re a growing number of … You can do this trip yourself, but there are a lot of growing number of tour groups that are customizing trips for the grandparents and the grandkids. Leave that middle generation at home because who needs mom and dad cramping both generations’ style here? One of the organization is Road Scholar, which used to be Elderhostel, and there’s another one that we talked about, Custom Safaris.

 We’re not just talking about trips where you’re just sort of walking down the street. Some of these trips are real expeditions. You can have it … There are these multi-generation trips, for instance, with Custom Safaris where you go for … There’s a two week itinerary that goes to Nairobi, the elephants, and other game, and national parks, and Mount Kilimanjaro. You could stay in tents. We talk about high … We’re not talking about crummy tents, they’re talking about high-style types of places that people stay at. You have a guide all the way. Some trips are just the few of you, other trips are with groups of people. There’s another group that does destinations, Costa Rica, Thailand, China. It’s growing, multi-generational travel is an increasing travel industry.

Jason Parker: I think it’s fascinating. So many people today, they don’t want to just leave money to the next generation. A lot of them, they’ve got a lifetime of knowledge and they want to share experiences with the next generation. What a cool way to do it, to be able to take the people you care about the most on a family cruise, on a family safari.

Susan Garland: Yeah, these kids will always … You could do it simply. There are domestic trips you can take. There was one couple that when each of their nine grandchildren turns ten, they take them on a week long trip without the other grandkids. They’ve gone … They haven’t necessarily gone overseas. One kid wanted to go to Williamsburg, and Jamestown, and Yorktown to look at the historic sights. One wanted to do a Road Scholar trip, Broadway trip where they took them. It was a scheduled, organized trip where they took them behind the scenes of Broadway and just the stage, behind the stage, and so forth. Another went to Prince Edward Island for a tour based on Anne Of Green Gables. There are all these different types of trips that you can take. It’s really memory-maker, I think, for the grandchildren and for the grandparents. You can involve your grandchild in planning. Give them a list of maybe five different trips and have your grandchild pick the one he or she wants.

Jason Parker: Yeah. That compared to the folks that don’t spend any time with their grandkids. The grandkids are never going to say, “Boy, it was so much fun going over to Grandpa’s house, watching him flip though his IRA statements every … ”

Susan Garland: I hope most grandparents don’t do that with their grandchildren, but you know.

Jason Parker: “Come on over here and sit down, sonny.”

Susan Garland: Exactly. In that case, that grandparent may not want to go away. You have the 78 year old or the 75 year old grandparent, you can have a rock climbing trip for one example. You know, maybe, if you as the older person don’t want to rock climb for that particular afternoon, maybe you sit there and you’re watching the bottom as the kid does it, or you choose a hike with flat terrain for rest stops. Obviously, there are very many active older folks out there, baby boomers, who will do the rock climbing, who will do the expeditions.

Jason Parker: Absolutely. I bet there’s a lot of them, too, that are probably saying, “Why don’t they have a little wine tasting booth down here at the bottom of this rock climbing while I’m watching the grandkids?”

Susan Garland: You never know, but you have to keep your whits about you if you’ve got little kids around, right?

Jason Parker: Before we run out of time here, you also had a great thing on Trim Your 2013 Taxes With Year-End Moves. Let’s transition into that just for a couple minutes.

Susan Garland: Sure. You may not be able to know what’s going to go on with your stocks, but you really do have some control over trying not to give Uncle Sam more than his due. I’m not saying do anything illegal, but there are ways to sort of trim your tax bill, especially when there are a bunch of new taxes, higher taxes, and new taxes this year.

 For instance, one of the things you do want to look at are your tax brackets. If you’re on the cusp between, let’s say, you … I’m just losing track, 25, 28, 30, whatever the tax brackets are, you want to make sure that you maybe take more deductions this year. You have a lot of flexibility. If you’re taking money out of your IRA aside from your required distributions, maybe you need some money from your IRA. Maybe you’re on the cusp there of the brackets, you keep it a little bit lower to stay under a bracket. You could maximize your pre-tax contributions to your retirement accounts, if you haven’t with your IRA or your 401-K, or 403-B. If you have, let’s say, a spouse at home who is not working, you could open a spousal IRA for up to … Now, I’m blanking. Up to $5,500.

Jason Parker: $55, $6,500. Yeah.

Susan Garland: Yeah, $6,500 if the spouse is fifty and over. You just have to have enough earned income, you, as the earner, to cover that spouse’s IRA.

Jason Parker: What about this charitable giving for folks over seventy and a half from their IRAs?

Susan Garland: Okay, so what you can do is if you want to give to charity and you do have your IRA, you can do a direct transfer from your IRA to the charity. Let’s say you can give up to $100,000. Let’s say you want to give $10,000, you basically call your IRA custodian, you call up the charity or charities that you want to give money for, and then you do a direct … You don’t take the money out and then give it to the charity. You do the direct transfer. Now, it’s sort of a wash in the way … Because ordinarily, you would take the money out of the IRA, and then you pay taxes on that distribution, and then you give the money to the charity, and you pay, and you get a deduction. It’s a wash. However, it’s not really a wash, because what happens is if you do the direct transfer, then you’re not taking a direct withdrawal and that is not added into your adjusted gross income.

 It’s important to keep your adjusted gross income down because that could be the difference between being above certain thresholds where you may be subject now to this new 3.8% tax on certain investment income, a surtax. Also, your adjusted gross income, if you keep it down or if it goes up too high, then you may be subject to income-related medicare premiums that kick in when your adjusted gross income exceeds $85,000 for a single $170,000 for a joint filer. Maybe it’s the difference between your social security taxes being taxed at a higher rate than not. Really pay attention to what your adjusted gross income is.

Jason Parker: I think it’s such a cool strategy. I don’t think enough people really take advantage of this. We know a lot of people in our community that tithe or that they give on a regular basis. If you do this strategically and you really think about it and you have to take a required minimum distribution anyways, well this satisfies the required minimum distribution, you still get, the church gets … Whoever you’re going to give the money to gets it tax free, you satisfy a required minimum distribution. It’s a win-win all the way around. Now, the one thing is, Congress has been kind of renewing this on a year-by-year basis, so this could be the last year to make that kind of a gift unless Congress does something.

Susan Garland: Well, it could be. Yeah.

Jason Parker: Have you heard anything on … ?

Susan Garland: Are you kidding? No, I’m sorry. No.

Jason Parker: You mean, you don’t have a direct line to the House of Representatives?

Susan Garland: No, no. Look what’s going on up there. They can’t decide on any of this stuff, tax reform, immigration. They’re not going to get to this for a while, for at least 2013, this is a great break and people should take advantage. If you’re just giving $500, it’s not worth going through all the trouble.

Jason Parker: What about the 0% on the long-term capital gains?

Susan Garland: That’s another wonderful thing. I think that expires … I can’t remember if it goes into 2014 or not, but basically, if you’re in the 10 or 15% tax bracket, which pop out at $36,000 for individuals, $72,000 for joint filers. That means if you are selling stocks or gains, you pay 0% on the sale, the gains of that as up to the top of the $72,000. As opposed to paying 15% normally, up to 20%.

Jason Parker: Yeah.

Susan Garland: If you have a much higher income.

Jason Parker: What a great opportunity to sell-

Susan Garland: It’s something you should really pay attention to if you’re in those brackets.

Jason Parker: Sell some winners.

Susan Garland: Sell some winners.

Jason Parker: Sell some winners.

Susan Garland: It’s 0%.

Jason Parker: 0%.

Susan Garland: If you sell a winner and you love it, you can buy it back immediately. It doesn’t fall into that wash-sale rule, which only has to do with losers. You sell it, you buy it back, and what happens is that you get that step up in bases, which means if you sell it down the road, the gain is only applied to the difference between what it’s worth when you buy it back and what it’s worth when you sell it down the road. If you can do that, I would do it.

Jason Parker: Susan, it’s another reason, too, to consider this charitable giving because if you take that required minimum distribution and it bumps you up into the next higher bracket, you could lose out on the 0% long-term capital gains because it bumps you out of the 0%, out of the 15% marginal income tax bracket.

Susan Garland: Yeah, you’re right.

Jason Parker: We’re just about out of time. One more time, if you’d let our listeners learn how they can learn more about the work you folks are doing there at Kiplinger’s Retirement Report.

Susan Garland: Okay, well, you could subscribe. Go to kiplinger.com. It’s a monthly personal finance newsletter for people who are pre-retirees and retirees. We provide, if you go to the website, go to the store, you take a look at a sample issue. I think on a good day, it’s $30. If you call them, ask for the $30 rate, see what happens. Just sometimes it’s $40, but it’s usually $30. It’s also a great gift. If you’re an older person, you want to give it to your baby boomer kids who are approaching retirement. It will pay off. I think there’s always … My goal here is that I want there to be at least one nugget every month for everybody, which will pay off over time of the subscription. We get a very high re-subscription rate because people love it once they get it.

Jason Parker: That’s great. Susan Garland, thank you so much for being a guest on Sound Retirement Radio.

Susan Garland: Well thanks for having me, Jason. I appreciate it. Happy New Year. Happy Holidays.

Jason Parker: Thank you. You, too. Bye bye.

Susan Garland: Okay. Thanks. Bye bye.

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