by Marc Bastow | January 7, 2013 10:00 am
With the uncertainty of the fiscal cliff (mostly) behind investors, it’s time to step back onto terra firma and make some moves in retirement planning and portfolio management.
Nobody is suggesting all of the guesswork is done, of course. Congress still needs to resolve the debt ceiling issue, and cuts to spending and entitlement programs of all sorts are still on the table. Those uncertainties are for another day, and truthfully, it isn’t much use worrying about such outside factors — after all, we already did plenty of that with the fiscal cliff.
So now, here are three steps to take to regain our focus:
It’s official: The most you’ll pay on your dividend income in taxes is 20%, and that’s if you’re lucky enough to take home over $400,000 (individual) or $450,000 (family) in income for the year. Now that you know what the rate is, it’s time start investing again. Want some names?
How about AFLAC (NYSE:AFL), the supplemental life and health insurance company featuring the (ubiquitous) quacking duck? Healthcare is still a critical issue heading into the new year, and AFL provides a solid 35-cent quarterly dividend. That’s a nice 2.7% dividend yield, and it has been paying dividends since 1973. Plus, AFL’s five-year growth rate is just under 15%.
Transporting oil and gas is key to America’s current energy boom, so you don’t have to stick to the usual energy names like Chevron (NYSE:CVX) and Exxon Mobil (NYSE:XOM), trading at north of $100 and $85 per share, respectively. Instead, head for a transportation play like Marathon Petroleum (NYSE:MPC), the spin-off from Marathon Oil (NYSE:MRO).
MPC is also a refining and marketing energy play, and its owns and operates six refineries in the Gulf Coast and Midwest. MPC trades at a crazy-low 8x earnings, and with a quarterly dividend of 35 cents, the yield of 2.10% is still better than a 10-year Treasury bond. The best news? MPC’s dividend payout ratio is just over 10%, so between the industry’s expected strong growth and MPC’s low payout, this one could be a long-term keeper.
Then there’s telecom giant Verizon (NYSE:VZ), which features a 4.67% dividend yield based on a 51-cent quarterly payout. Or you can choose AT&T  (NYSE:T). I don’t think you’d lose long-term holding either name, so look at both and decide for yourself.
With investment taxes now settled, why not take another look at your 401(k) or IRA plan and decide if your portfolio mix is where you want it to be given your time horizon to retirement and withdrawals.
Determine if any of your target-fund dates need adjustment or if you want to move money out of stocks and into bonds. As much as nobody wants to leave cash in accounts that don’t outearn inflation, liquidity is also important, so decide how much to put into money funds or short-term instruments.
One of the biggest factors in retirement is managing expenses. While you may have taken out your mortgage 20 or 30 years ago, you might also have refinanced — perhaps more than once. So, review whether you want to stay where you are today.
Nothing has changed regarding taxes when selling a home: The first $500,000 gain (for a couple) on the sale of a primary residence is still tax-exempt.
For those who plan to stay put, reverse mortgages are getting increasing popular — and more pushed in both print and TV ads. Given the right circumstances, a reverse mortgage may not be a bad idea. Money Magazine reports that 83% of baby boomers plan to stay in their homes through retirement.
But be careful: Expensive fees, potential increases in your living expenses and other factors complicate the supposedly easy math and “no-brainer” marketing tease. Consult a financial planner before you jump into a reverse mortgage.
Marc Bastow is an Assistant Editor at InvestorPlace.com. As of this writing he is long VZ and XOM.
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