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The Biggest Fear in Retirement, and the ‘Gold’ Solution

Investing in the precious metal for the future

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An interview with Dennis Miller of Miller’s Money Forever, by Jeff Clark

We get a lot of questions from readers about what role precious metals should play in retirement planning, so we figured, who better to ask than our own Dennis Miller, editor of Miller’s Money Forever. In the following interview, Dennis talks about how to categorize investments, why he likes Roth conversions, the greatest danger many seniors will face from Obamacare—and how he recommends protecting against it.

Jeff Clark: You’re our in-house retirement expert, Dennis, so let me ask… what place do precious metals have in your retirement portfolio?

Dennis Miller: A critical place. But first, let me address how we categorize our investments…

In our Miller’s Money portfolio, we start with what we refer to as “core holdings.” These are the assets you want to own should our worst fears come true. Many investors are concerned about government debt levels and money printing, and your core holdings are designed to help you weather any coming storm, whether it be inflation, economic collapse, or something unforeseen.

Think of your core holdings as insurance. These are assets you want to hold on to and not trade—we’ll only “cash in” if a worst-case scenario comes to pass. And as you know, gold and silver are ideal for this type of insurance. They’re recognized throughout the world and, if held in physical form, have the added benefit of being outside the financial system.

Jeff: No argument here. How much do you recommend in core holdings?

Dennis: We recommend core holdings comprise at least 10% of a portfolio. For those nearing retirement, I would recommend you be positioned at 10% by the time you stop working full time.

We trade time for money in our younger years—but retirement is the opposite; we trade money for time. Our focus changes from working and accumulating wealth to retirement and maintaining that wealth and making it last so we can enjoy the rest of our life.

Jeff: What investments are in your core holdings?

Dennis: I start with the basics. Should we see high inflation or even hyperinflation, you will need immediate access to the type of assets that will still function when no one wants paper money. I start with junk silver because it is a smaller denomination and more practical on a day-to-day basis. Silver bullion coins are also good for this purpose. You may not want to cash in a one-ounce gold coin for groceries, though we include gold, of course.

It can also include farm land, foreign currencies, and other investments; however, metals should be a significant part. Their portability and worldwide recognition provide advantages few other assets can.

Jeff: I know many gas stations in the 1970s accepted junk silver and silver bullion coins.

Dennis: That’s right.

Jeff: What’s the other category?

Dennis: Our second group of investments is for the explicit purpose of selling for a profit. This can be ETFs, stocks, stock funds, etc., that you believe will appreciate. Those should be evaluated just like any other investment opportunity.

Jeff: Is gold and silver in this group?

Dennis: Yes, I include precious metals in this “for-profit” group, too, because they offer profit opportunities. You may find times where they’ve had a big run-up and you want to sell some of your position to take a profit. I cashed out some gold investments with some nice gains in the past and plan to do so again—but these are not my core holdings, they’re in my “investment” category.

This is why when people ask what percentage of their portfolio should be in precious metals, I feel it is the wrong question. It really should be how much of your portfolio is in core holdings and how much is invested for the purpose of selling down the road at a profit. Mentally, and sometimes physically, you need to keep them separate.

Jeff: That makes sense. Are both of these groups in your retirement portfolio, or how do you divide the assets between a taxable brokerage account and a non-taxable one?

Dennis: There are a couple parts to that answer. First, by the time most people retire, they generally have some assets that are tax deferred, such as a 401(k) or IRA, and others that are taxable. Our strategy is to use the taxable accounts and let the tax deferred accounts grow. Then we draw from these accounts as sparingly as possible.

However, tax deferred should not be confused with non-taxable. Somewhere in the process, buying out your business partner (i.e., the government) and moving your money into a Roth IRA makes a lot of sense.

This is one area where my retirement experience comes into play. There are lot of retirement experts that recommend keeping your money in your 401(k) and traditional IRA as long as possible, and they’ll run the numbers to make their point. However, they don’t account for the likelihood that our tax structure will change, a rather shortsighted and risky assumption. If taxes rise as I suspect, their models become much less accurate and you’ll end up with much less money to spend.

When you move money from a traditional IRA into a Roth, the distribution is taxable. However, you do not have to move all of it in a single year. By converting a little each year, you keep your overall taxes down because you’re not moving up to the higher brackets so quickly.

Jeff: Do you have a strategy for which investments to convert first?

Dennis: Good question, and yes, I would move the holdings that are temporarily in a downturn first, because when you take them out of the tax deferred account, they’re taxed on the current market value. With metals and particularly metals stocks being in a holding pattern, this is an important consideration—if you wait a couple years until they appreciate more, you’ll pay more not just in taxable gains but probably a higher tax rate on those gains.

Once your assets are in a Roth, it is truly a non-taxable account, with the added benefit of not having to take out a required minimum distribution as you get older. Personally, I own a lot of my gold stocks in our Roth accounts, patiently waiting for that market to turn around, as we know it will. If I were making the transition from a 401(k) or traditional IRA to a Roth, I would move most of my metals sooner rather than later. Then when the turnaround comes, our gains are truly tax-free.

Along these lines, the Hard Assets Alliance has an excellent program for a precious metals IRA, one of the best I’ve ever seen.

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