Planned Retirement Communities in the United Kingdom

While planned retirement communities have flourished for decades in many developed markets, such as the US, Scandinavia, Australia, and New Zealand, they are only now taking root only now in the United Kingdom. The lag is largely due to a shortage of free land and a lack of local zoning recognition. Such wants have held back the development of retirement communities in the United Kingdom.

Retirement Communities in China

Gavin Aleksich, a veteran retirement village entrepreneur who moved from New Zealand to the UK in 2005, after identifying the United Kingdom as a particularly promising market foresees Asia as undergoing a huge change in care for the elderly, particularly in China. He sees tremendous potential for future retirement communities in China, for the country’s one-child policy has undermined Chinese family-based tradition and will result in an exploding need for retirement care as the population ages.

Retirement Age in Europe

France is trying to up its legal retirement age from 60 to 62. Most European countries, as well as Canada, though, set their official retirement date at 65. Germany and Denmark recently pushed the age up to 67 while Britain is contemplating an increase to 68.

An International Ponzi Scheme

The U.S. Securities and Exchange Commission (SEC) has charged four Canadians and two Americans for their roles in leading a US$300-million international Ponzi scheme. The scheme centered around a fake gold mining operation in Honduras.

The SEC alleges that Milowe Brost and Gary Sorenson, both of Calgary, Alberta, Canada,  were the ringleaders and the main beneficiaries of the scam. They and their sales team persuaded more than 3,000 investors in both the U.S. and Canada to invest their savings, retirement funds, and home equity over a span of nine years. The cadre allegedly presented themselves as an independent financial education firm that had discovered investment opportunities with gold mining companies. They told investors they could earn 18-100% annual returns by investing in these companies.

But the companies were actually shell phonies owned or controlled by Brost or Sorenson. They transferred investor funds from bank account to bank account in places as far as Asia, Europe, and South America and bought lavish homes, resorts, and recreational vehicles.

Coping with Tax Hikes

Barron’s predicts major tax hikes on everything in 2011 and 2013. Top-bracket income taxes, by prediction, are likely to rise to 39.6%.

The investment weekly then goes on to make the following recommendations:

• If you've been considering selling any highly appreciated investments—whether a stock or a second home—consider doing so in advance of the capital-gains increases.
• Carefully plan when to use any losses you are carrying forward. You may get more mileage out of them if you wait and use them once capital-gains rates have gone up.
• If tax rates on dividends go up for top earners, consider holding dividend-paying stocks in tax-deferred accounts.
• Compare tax-equivalent yields of municipal bonds to those of corporate bonds.
• Loans against whole-life insurance policies are another way to pocket tax-free cash. One strategy would be to overfund a policy, i.e., pay the insurer more per month than the policy charges, to build up a large cash value; then take out policy loans to meet cash needs. You will not be required to pay back the loans to the policy though if you cash out of the policy during your lifetime, the loans would have be taxed as ordinary income.
• To mitigate an increase in income tax and the rising Medicare payroll tax, carefully consider the timing of events that add to your income, such as bonus payments, the vesting of restricted stock options, and the exercising of stock options. Try to accelerate those to this year and/or the months prior to the tax increases.
• For some, convert your traditional IRA to a Roth IRA before further tax increases. Withdrawals from regular individual-retirement accounts are taxed as ordinary income, but they are tax-free from Roth IRAs once you are 59½ years old. The Roth's tax-free status is already attractive. But conversion may not be for everyone.Income taxes are owed on any amount you convert, so you must be confident that the Roth's tax-free gains will outweigh the upfront tax bill over time.

Retirement Advisors See Recovery

Retirement Advisors of America thinks that capital expenditure plans are already expanding production, and that this expanding production will expand payrolls. "We fully expect this recovery trend within the labor market to continue during the second half of 2010," states Jeremy Merchant, Vice President of Investments and Operations.

A Picture Replaces a Thousand Words

The Kellogg School of Management of Northwestern University is currently testing computer software to change the appearance of photos of test subjects as they make choices about retirement.

The software works this way: As the subject moves a slider to the left, which indicates earning more now and saving less, a photo of the subject as a young person gets happier while a computer-aged photo of the subject as an older person, gets less happy. Conversely, the reverse is true. Saving more for retirement makes the older photo happier and the younger photo less happy. The methodology assumes a visual representation of outcomes will be more meaningful than a column of numbers.

This experiment is on the frontier of what is now being called behavioral economics.

Down with the 4% Rule!

The “4% rule” has been a common assumption among financial planners, investment professionals, and the popular press. The rule recommends that retirees spend an inflation-adjusted 4% of their retirement assets each year, while keeping the balance of those assets in a portfolio that typically includes both stocks and bonds.

Nobel Laureate William Sharpe, of Stanford University, calls this rule into question. What's wrong with the 4% plan is its insistence on fixed spending coupled with investing in a portfolio with variable returns, says Sharpe. In the most obvious case, when a retiree's portfolio underperforms, stubbornly pulling money out at the same rate means he or she will run out of money at some point.

Less obvious, though, is the consequence of better-than-expected returns. The rule assumes a constant rate of spending and posits a retirement lasting 30 years. Ruling out what economists call "the bequest motive," we can assume that the retiree wants to spend it all within the retirement period.

But generating a surplus means that there’s money left over at the end, which is a waste. Not only is the surplus wasted, but also there's additional waste on the front end because the retiree paid for investment surpluses he didn't need.

In summary, the 4% rule attempts to finance a constant, nonvolatile spending plan using a risky, volatile investment strategy. But Sharpe says investment professionals need to find ways to help clients make a realistic assessment of their own risk tolerance. And that means discarding the traditional quiz and finding a better approach. "The way in which you frame a decision affects how someone will make it," he says. Sharpe and other researchers are working to develop methods that will help identify real risk tolerances.

The UK’s Fastest Growing Demographic

Older households form the United Kingdom’s fastest growing demographic group and will represent half of all household growth between now and 2026, according to a recent Knight Frank report. The Council of Mortgage Lenders estimates older households possess about £1 trillion of unmortgaged equity, or roughly half of all housing wealth in the UK.

Canadians Ill-Prepared

Almost half of pre-retired Canadians above the age of 45 are not fully prepared for a comfortable retirement, according to the results of a survey commissioned by the Canadian Institute of Actuaries (CIA). Specific results regarding pre-retirees include:

• Only 45 percent agree that they are confident in their financial future - 34 percent disagree;
• One in five (20 percent) say they will never fully retire;
• Just one in 10 (8 per cent) are "very prepared" for retirement - 42 per cent are not prepared (13 per cent "not at all", 29 per cent "not very").

The survey also found that half of all respondents are not seeking financial advice of any kind, whether it is from a bank, a specialist adviser, a relative or even a book.