I am not a gold bug, but I have always owned some gold (and silver) in my investment portfolio. A few years ago I upped my percentage to 20% where it is now. Given the events of the past two years that has been a blessing. In that period of time gold has risen from around $600 when I increased my investment percentage to over $1000 per ounce today.

Investment risk

There are two risks to any investment: It can go down as well as up as we have seen stocks and real estate do over the past year or so. The other risk people seldom pay attention to is inflation. Right now we have slight deflation. But if the government continues to print money and run larger and larger deficits, there will come a time when investors around the world who hold dollar denominated investments such as treasury bonds and stock in American companies will start dumping them. Since most of our consumer goods are now imported, the falling dollar means that the price of those goods in dollars will rise. The first commodity to do that will be oil. Since the world wide price of oil is set in dollars, a weaker dollar will mean higher priced oil in dollars.

Gold and Inflation

The price of gold is inversely proportional to the value of the dollar. As the dollar falls the price of gold goes up. This makes gold –and to the same extent silver, a hedge against inflation.

During the early 1980s as the dollar fell in value, the price of gold shot up from $300 to over $1000. As the fed tightened up the money supply and increased interests rates, gold fell back to the $300 range where it stayed for years. But in 2007, the dollar began its slide and gold started up again –hitting a new high last week of $1070.

The Gold Bugs claim that gold could reach $5000. I think that is as far fetched as the Gold Bugs themselves, but serious analysts and investors do believe that gold will certainly hit $1300 in the near term and as high as $1500-$1800 over the next year or so. I tend to agree with them.

How to buy and own gold

There are two easy ways to own gold. You can buy physical gold from several firms such as Blanchard and Goldline –both very old respected large companies. The other way is to buy stocks in gold companies or an exchange traded fund (symbol GLD) that tracks the price of gold on a daily basis.  These last two can be owned in a IRA, Roth IRA or a 401K fund.

Is Gold a safe investment for seniors living on a fixed income?

It can be if you  do it correctly. A little physical gold or silver can be great to have around but I wouldn’t place a large percentage of my savings in that as the price could crash before you can sell it. Trading a fund like GLD or owning stocks in gold mining companies, such as Barrick Gold, is probably better because you can control your risk with Stop Loss Orders and you can trade them instantly.

But like any investment, you don’t want too many off your eggs in one basket. If I were 20 years younger, I might have a higher percentage of my money in gold, silver and other resource stocks, but at my age I think 20% is right for me –but I still have earning power. If I were completely retired and needing to live on my social security and investments, then 10% or even 5% might be safer –but I definitely would have some as a hedge against the inflation that is certainly coming.

Another way to hedge against inflation is with resource stocks such as oil, mining and chemical companies as the price of those goods are highly sensitive to inflation and the value of the dollar and would increase as well if the dollar continues sliding.

When to sell your gold

The best time to sell any commodity is when everyone else is buying.  My youngest son was investing in real estate. He started in 2003. During early 2007 (when the real estate boom was about to bust but we didn’t know it) I was watching a TV show –I think it was Dateline or 20/20. They were doing a story about ordinary people getting rich in real estate in Florida. They were interviewing a manicurist who owned 4 pieces of property and was about to buy a million dollar condo that wasn’t even built yet. I tuned to my son who was visiting at the time and told him it was time to sell his real estate. He asked me why and I said because the best time to sell anything is when everyone is buying. that is always the sign of an impending bubble bursting.  Right now a lot of investors that understand what is happening in our economy and with the dollar are buying gold –but when every one of your friends and neighbors and people you know are unsophisticated about investing start buying gold –that will be the signal to sell and take your profits.

Once you retire, living on a fixed income has its challenges. One of the best ways to manage your money and make sure you meet your needs and avoid unnecessary debt is to budget. Too many seniors plan only with long-term budgets, but one of the tricks for successful budgeting is to have interim short-term budgets. (See step #1)

Unless you budget your money, you’re begging to go deeper into debt, and making it impossible to save. Take these steps to figure out how much money is supposed to go where so you can control your spending accordingly.

Steps

• Create a budget every time you get money. For most people, this is once every two weeks. Sometimes it’s weekly, sometimes it’s monthly. Either way, it’s a regular interval, and it’s the best time to decide how you’re going to spend your money. Make a personal rule that you won’t spend any of your paycheck money until you’ve worked out your budget.
• Make a list of all the things you’ll need to pay for until the next paycheck, such as:
  • Rent/mortgage
  • Utilities
  • Medicare/Medigap Premiums, medications
  •  Food/groceries
  • Vehicle payments, insurance, maintenance (e.g. oil changes, tire rotations), Gas
  • Any debt payments
• Anticipate how much you’ll need to pay for each and write that amount next to the corresponding item on the list. You can also opt to pay for a fraction of something that isn’t going to be due until after the next paycheck. For example, if your rent is $800 due on June 1, you just got paid $700 on May 12, and your next paycheck will be $700 on May 26, it may be wise to set aside $400 from this paycheck for rent so that you only need to take $400 out of your next paycheck to pay for rent.
• Add up all of the amounts (we will call this your regular expenses) and subtract it from your paycheck amount. Do you get a negative number? Then you are living way beyond your means. Something has to go, or you will have to find a way to supplement your income. If you have money leftover, split that money up into a few groups:
• Savings. Ideally, this should be about 30% of your paycheck, although even 10% (if you do it consistently) is pretty good. Build up enough savings for an emergency fund (6 times your regular monthly expenses), then start saving money to invest.
• Emergency money. I like to keep about 25% of regular monthly expenses in an emergency fund. This would cover things like sudden unexpected car repairs, or extra medications if you get sick or that Grandson’s birthday you forgot.
• Spending money. This is whatever is leftover after you subtract emergency money and savings money. It’s what you’d spend on things like clothes, eating out, movies, gifts, and anything fun, basically. If you start to cry when you realize how little fun money you have, then you need learn How to make some extra money.

Keep everything but your spending money out of reach. Leave everything (except your spending money) in the bank. Withdraw all of your fun money in cash, and leave your debit card (and credit card[s]) at home. Use the cash for anything you want, just make sure you make it last until your next paycheck. You might not want to carry it on you all at once, but having physical cash will help you keep better track of your fun money than using a card.

 Here is a great article from Nilus Mattive from Money and Markets that sets out the current and long-term problems with Social Security. We Geezers will probably be OK, but a generational war could be brewing. I shared this article with my two sons (age 25 and 30) They both said: (A) They don’t think they will even see social security, and (B) They have no desire to pay for it. With baby-boomers retiring at the rate of 14,000 per day and soon to increase to over 20,000 per day, this could become a critical issue over the next 5 to 10 years.

Social Security Situation Worsening; What to Do ?
by Nilus Mattive  

 We got lots of disturbing news from Washington last week. But the latest updates on Social Security and Medicare really got my blood boiling.

It is now estimated that both programs’ trust funds will run out sooner than previously expected. In the case of Medicare, the date is 2017 rather than 2019. For Social Security, it’s 2037 rather than the previous estimate of 2041.

Both programs are suffering because of the recession. The simple explanation is that fewer jobs mean less money getting paid into the systems. That creates a bigger drain on the programs’ current resources.

But it merely highlights the larger issue, one that has been there since the very beginning of Social Security.

The Problems with Pay-As-You-Go …

It’s interesting – and very instructive – to look at the history of the U.S. Social Security system.

The program’s first payment reportedly went to Ernest Ackerman. He retired a day after the program began, and contributed a whopping nickel. His lump sum payout? Seventeen cents. Not a bad return for good ol’, Ernie!

Ernest Ackerman put in one nickel to Social Security, retired a day later, and got back a $0.17 lump sum payment. Need I say more?

Meanwhile, the first person to receive a monthly payment from Social Security was Ida May Fuller. During the late 1930s, she contributed $24.75 into the system. Her initial monthly check was $22.54, so by her second check, she had more than recouped her entire investment!

And get this: She lived to be 100 years old, collecting $22,888.92 out of the system over her lifetime!

Sure, it’s an extreme example. But it demonstrates the real problem with Social Security … the problem that has existed since day one … and the problem that is only worsening as more and more people live to Ida-May-Fuller-like ages …

Social Security’s pay-as-you-go structure means a never-ending game of catch up.

When Social Security was first instituted in 1935, it covered about half of the population. Many teachers, nurses, librarians, and other workers were excluded from coverage. What’s more, the average life expectancy was about 60.

Today, Social Security covers virtually everyone. The average American is living to age 76.

And to accommodate this widening gap of money coming in and money going out, the initial 1937 payroll tax rate of 2 percent (split between employer and employee) has already risen to a combined 15.3 percent (including Medicare taxes).

Yet, I’m sure it will absolutely have to go much higher if the system is to survive!

Reason: Based on the newest projection, Social Security will begin collecting less money than it pays out in 2016.

Odds are also extremely good that the current cap on the amount of a salary that is subject to Social Security taxes ($106,800 in 2009) will have to be raised or completely eliminated.

And all of this begs additional questions …

Will Social Security Benefits Be Reduced? Or At Least Taxed?

Should You Start Taking Payments As Soon As Possible?

I believe Washington’s preferred solution will be getting more money into the system. But I would not completely rule out some tinkering on the payout side, either.

Taxing benefits at the Federal level has been one idea bandied about. That would be a slightly less obvious way of reducing future recipients’ payments.

Continuing to bump up the age at which benefits begin is another, and by the time I retire, I’m sure the age will have increased substantially.

But I would say that if you are near – or already in – retirement, you shouldn’t worry too much about your payments.

In fact, despite Social Security’s problems, I still suggest you consider delaying your benefits as long as possible. Sounds counter intuitive, I know.

After all, the conventional wisdom is to just start collecting as soon as you can. This is both because of the aforementioned problems – i.e. “catch as catch can” – and because it is commonly believed that the system is designed to work out the same no matter when you begin collecting.

But let me explain my logic here …

I think near-term Social Security recipients have little to worry about. Everyone else? I shudder to think …

First, it would be political suicide for anyone in Washington to mess with near-term benefits. Instead, the preference will remain – as it always has – kicking the buck further on down the line. Can it continue this way forever? No. But for longer than it probably should.

Second, there are also logistical problems with changing soon-to-be-retirees’ benefits. After all, the government uses formulas to calculate benefits at age 60 and 62 for each recipient. They are unlikely to retool the entire process overnight.

Third, it’s true that the system is designed to pay out the same in total benefits no matter when you start collecting. But the calculations are obviously based on averages and you are anything but average!

It’s important to look at your individual situation before you just accept the conventional wisdom. Sure, if you need the money to live on then just take it. But if you can delay taking your benefits, it might be worth your while, especially if you have “longevity genes” in your family.

After all, the Social Security Administration will raise your future payments for every month that you delay. Annually, that will amount to an 8 percent increase (plus any cost-of-living adjustments).

So the longer you delay taking benefits, the bigger your monthly benefit.

The math differs for every person, but consider someone who’s age 66 and has the choice of collecting $2,000 a month for the next 12 months or an additional $160 every month starting a year from now (i.e. the 8 percent annual increase for delaying benefits).

The $24,000 upfront seems like the better option. Especially since it takes 12 ½ YEARS of payments to make up for that missed $24,000.

Yet according to government statistics, the average American at age 66 will live another 17 ½ years.

In other words, you stand a very good chance of collecting at least another five years worth of those extra $160-a-month payments. That comes out to another $9,600 in your pocket!

So yes, Social Security is riddled with problems. And yes, it may not be around – or paying out nearly what it will hand near-term retirees – by the time I’m collecting my checks.

We will also all face higher taxes in the near future if the system is to be “saved.”

But there are still plenty of things that you can do to get more of your money back out of the system. Don’t feel guilty about it. Don’t worry about it. Just educate yourself on all the options and possibilities and take advantage of every little advantage you can.

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This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.

Learn how to make money with low-risk, low cost online businesses.

The Official Geezer Guide to Starting on Online Business, Skip McGrath

Don’t get caught in a Bear Market Rally. It may sound like good news when you hear that unemployment is falling more slowly that is was earlier -but falling is still falling. There is no end in sight to increasing unemployment and consider these other factors:

• Factory utilization fell to its lowest level since recording- keeping for this data series began in 1967.
• The ISM Index of business activity dropped for the seventh straight month.
• The S&P/Case-Shiller Index of home prices fell for the 25th straight month
• An additional 600,000 families lost their homes to foreclosure.
• The number of homeowners who fell 60 days behind on their mortgage payments grew to more than 5 million.
• The number of homeowners who owe more on their mortgages than their houses are worth grew to more than 8 million.

What does this mean?  Stock markets always rally after steep declines -but they often resume their decline once that exuberance runs out of steam.  No one knows how long this rally will last or how high it will go before correcting –but it will correct and when it does it will be bloody and fast.

If you have been back in the market for the past three months then good for you. Personally I missed most of the gain. I bailed out three weeks ago and went back into cash and treasury bills. A better move would have been to stay in the market but keep tight (<5%) stop loss orders in place.

A stop loss order is an instruction to your broker that if a stock falls below a certain price it triggers an automatic sell order.  The way to use these is to keep them moving.  For example if you purchase a stock for $20 today you would instruct your broker to sell it if it drops 5% (to $19) from that price.  A few weeks go by and the stock is now selling for $22.  At that point you would want to adjust your order and raise your stop to $20.90…and so on.  I like to update my stops every Friday after the close of the market.

If you use an electronic brokerage such as Schwab or eTrade, they offer trading platforms where you can set what is called a “trailing stop loss.”  You can set your stop using a fixed dollar amount or a percentage.  For example you could set a 5% trailing stop loss.  If your stock drops 5% from the previously highest closing price, then the system would automatically sell your stock.

Be careful setting your stop losses too close. the market is volatile and many stocks can drop 2 % or 3% pretty quickly only to rebound the next day.

So be careful and keep your powder dry.  If you lost 20%, 30% or 40% or more in your retirement funds there will be plenty of chances to get those losses back.  Do it slowly and carefully. If you make 1% or 2% a month that is excellent -but most importantly don’t lose any money.

These are troubling times, but it’s not the end of times. Most of us remember the 1970’s. Gas prices doubled and drivers waited in long lines. In 1973-74 the stock market fell 48%. A vice president (Agnew), and then the president (Nixon), resigned in disgrace, Helicopters were evacuating Americans from the roof of the embassy in Saigon 

Mostly I remember Jimmy Carter. He was a  one-term Georgia Governor and a former peanut farmer. Carter ran for election sounding like a conservative but governed from the far left.  Much like today, the Democrats captured 61 seats in the Senate and 2/3rds of the House. They raised taxes on the wealthy, tried to fix prices, and increased spending. They instituted a slew of show trials in the Senate and effectively shut down the CIA for years to come.  Global cooling was the big worry.  The pundits of the time said we would run out of oil by 1985 and would not be able to feed the world’s population by 1990.

In Carter’s last year in office, inflation hit 13%. That was the year we bought our first home.  We felt lucky to get an 11% VA Mortgage. In his last 436 days in office, 130 Americans were held hostage at the American Embassy in Iran. 

Oh yes, the Swine flu first surfaced in 1976.  The government mobilized to vaccinate 40 million Americans at a cost $500 million in today’s dollars. One person died from the flu and 30 people died from the vaccinations. 

So we have been here before and we will certainly see good days ahead.  But what is different this time, and what worries me, is the accelerating class warfare.  You can’t love the employee and hate the employer. You can’t hate the rich and create jobs.

We have a local –and painful example of this. I live in a small town of about 14,000.  Our local industry is fishing and boat building –specifically there are three companies in town who build super-yachts –the kind that sell for $25 million and up.  They are now on their last builds. No new orders are coming in. So when the current builds are finished, about 500 highly paid workers will be out of work.  Yes some may revel in the fact that the rich are less rich now –but those 500 workers won’t be among them.  I think Abe Lincoln said it best:

You cannot help the poor by destroying the rich.

You cannot strengthen the weak by weakening the strong.

 You cannot bring about prosperity by discouraging thrift.

 You cannot lift the wage earner up by pulling the wage payer down.

 You cannot further the brotherhood of man by inciting class hatred.

 You cannot build character and courage by taking away men’s initiative and independence.

 You cannot help men permanently by doing for them, what they could and should do for themselves–Abraham Lincoln

Learn Six Ways to Make Extra Money with an Online Business. These are simple, low-cost and low-risk businesses than anyone with even the most basic of computer skills can start right from home.
The Official Geezer Guide to Starting an Online Business by Skip McGrath

You have probably seen the TV ads:  Send us your gold jewelry and we will send you cash.  Don’t fall for this.  You can do much better selling to a local gold dealer.  When you melt down jewelry for gold this is called scrap gold.  The price for scrap gold has always been much lower than the spot gold price because of the work involved in surveying, melting, recasting and storage and distribution.  Today most gold dealers will give you about 50%.

But those companies that advertise on TV who say they will send you an envelope, you mail in the gold and they send you cash -well some of those companies are giving consumers as little as 5% of the spot value. And don’t trust the so called guarantees.  Many of these companies claim that you have 10 days to return the money and get your gold back, but when you read the fine print, it says “10 days from the date on your check.” But, many consumers have complained that the write the check and then hold it for 3 or 4 days before mailing, so you often only have a day or so.

When you send in your jewelry you are basically at their mercy.  If you want to sell your gold, you can often shop around for local pawn shops and gold coin dealers who often buy gold.  This way you take the gold in, and stand their while they test and weigh the gold. Then the dealer makes you an offer. If you don’t like the offer simply thank the person and leave.

If you would like to know what your gold is worth you first have to know how many karats it is. Fourteen karat gold is about 50% pure, whereas 18K gold is about 73% pure.  You can weigh your gold on a digital postage scale to get the approximate weight, then go to the Scrap Gold Calculator at Mid-States Refining website at http://www.midstatesrecycling.com/karatpro.php.  Select Troy Oz. on the pull down at the bottom  of the page and then put in how many ounces of each karat of gold that you have and it will calculate the value.  Notice that there is a $100 refining charge. So if you only had a 1 oz, 18K ring you would get $323 for it. But if you had 5 ozs of 18K gold, you would get $2901 which is about $580 per ounce.  Even at the lower price of $323 that is about $300 more than most of the cash for gold places would give you.

Lastly if you really want to get the most money, then you can melt down your own gold.  Basically all you need is a propane torch and a crucible to hold the gold.  Just Google the term “how to melt gold” and you will see results from Wiki and eHow that give instructions.

Have you even called to cancel a service and they tried to talk you out of it by offering you a lower rate.  This is one of the best secrets to saving money.  After 6 years with Dish Network, I moved to Direct TV because Dish did not have all the channels I wanted. When I called to cancel they offered me a fabulous deal to stay.  I could get a free upgrade movie package for a year and a lover overall rate. Well I didn’t change because I really wanted the channels and Direct TV was giving me a good deal too, but it got me to thinking.

I have been with my cell company for several years and was well past my contract date.  So I called them up and asked if I was getting the best rate.  The service rep went over the rate plans and it turned out the rate I was on was the best they offered now. So I (politely) told the rep that if they couldn’t make it any cheaper would they please cancel the service.  She asked me to wait a moment and then a supervisor came on the line.  She said that if i would like to stay she could offer me an additional 300 free minutes.  I told her that I rarely use all my minutes, so then she said they could cut my plan by $12 per month for one-year.  So I said, “Sure that works for me. Thank you.” Savings $120.

Next I did the same thing with my Internet provider. They wouldn’t discount the overall service but I was paying an additional $2 per month for each extra email address I had. So they said they would give me up to 5 email addresses for the cost of one –savings $8 month.

This not only works for online services.  I got a call from the company that does our chemical lawn service. They always call to schedule an appointment to spray the lawn so we can bring the dogs inside. So when they called I said I was thinking of cancelling the service. the result –an instant 15% discount.

Still Waiting for Your Bailout – Try creating your own

I don’t know about you, but this geezer is getting tired of waiting for his bailout. How about you.?

• The government is paying off other people’s mortgages but Karen and I are still making our own payments
• The government is bailing out the auto companies and the banks but my little company is still chugging along. Yes, business is down but we are still doing OK –we just have to work more hours.
• I have been working hard for the past ten years to pay off all of our debts so we are almost debt free as we go into retirement, but the government just committed every living American to about $45,000 in new debt I hadn’t planned on. That one will probably outlive me but it will eventually be paid back with increased taxes, reduced Medicare and SSI payments and inflation that the debt will cause.

So since I am not holding my breath waiting for a government bailout –how do I get one for myself?

Personally I follow four strategies:

1. Reduce debts – in any recession cash is king. Now is the time to be ruthless in cutting your expenses and paying off your debts.
2. Keep your cash is safe banks or US treasury bills. Don’t think the stock market rally means we have found the bottom. There is a lot more bad news to come. Before unemployment finds the bottom it has to stop falling –but current unemployment rates are still accelerating. Although residential real estate is probably near its bottom, the crash in commercial real estate is just around the corner. And the banking crisis is far from over.
3. Keep a little silver or gold on hand.
4. Find ways to supplement your income.

Whether you are already retired or about to retire, there are lots of ways to supplement your income without taking an extra job or going back to work.  The very fact that you are reading an online blog means you have some basic computer skills.  In my latest book, The Official Geezer Guide to Making Money with An Online Business we take you though several online business opportunities that are low cost and low risk that can help supplement your income in hard times.