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CNN Live Saturday
Dollar Signs: Planning For The Future
Aired July 03, 2004 - 16:30 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
WHITFIELD: "DOLLAR SIGNS" is straight ahead, but first, a look at the headlines.
More clashes today between Palestinians and Israeli forces in Gaza and the West Bank. Palestinians say three people were killed, including an 8-year-old child. Israel confirmed only two of the deaths, saying they were the result of defensive action.
Democratic presidential candidate, John Kerry is working to pick up votes in the American heartland. He spoke to dairy farmers in Independence, Wisconsin today. It's part of his three-day tour through Minnesota, Wisconsin and Iowa.
In the meantime, Vice President Dick Cheney is on a bus tour. His first stop: Parma, Ohio, a Cleveland suburb, where he touted the Bush administration's economic successes and criticized Senator John Kerry. Kerry also is visiting Pennsylvania and West Virginia.
Some cooler weather is helping firefighters in Alaska, but an evacuation order remains in effect for 277 homes northeast of Fairbanks. So far, the wildfires have scorched about 215,000 acres. Officials say the choking smoke has become a health hazard and continues to keep helicopters grounded.
Well, welcome to "DOLLAR SIGNS." The big news in the big money world this week: the Fed raising interest rates for the first time in four years. Does it signal an abrupt end to the era of cheap money, or is there still time to borrow?
Here's our Kathleen Hays.
(BEGIN VIDEOTAPE)
KATHLEEN HAYS, CNN REPORTER: An interest rate hike heard 'round the world as Alan Greenspan and his colleagues at the Federal Reserve boosted the key short term rate to 1.25 percent from 1 percent: what had been the lowest interest rate in more than 40 years. But keep this in perspective: this is still an incredibly low interest rate.
ALAN BLINDER, FORMER FEDERAL RESERVE VICE CHAIRMAN: That's still pretty cheap money to me. I think the era of cheap money, it's on its way out, but it's still here for a while.
HAYS: The Greenspan-Fed's last rate hiking cycle started in the late 1990s as officials worried that a soaring stock market and a roaring economy were boosting inflation. Their key rate topped out at 6.5 percent in May of 2000. But as the stock market bubble burst and thousands lost their jobs, the Fed reversed course and cut rates with a vengeance, especially after the September 11th attacks pushed the economy even deeper into recession. The last rate cut was in June of 2003 and the Fed watched nervously, hoping jobs would begin to grow again.
BLINDER: And the Fed felt that it was its duty to push the economy up out of the hole. And I think they were right in that.
HAYS: Super low interest rates caused auto sales to skyrocket. Home sales heated up, consumers refinanced mortgages at record rates, and aided by tax cuts, the economy started to recover.
With signs of inflation appearing and jobs growing again, the Fed has switched gears. Now the big question on Wall Street is if it keeps hiking rates in small baby steps, or gets more aggressive.
ALICE RIVLIN, FORMER FEDERAL RESERVE VICE CHAIRMAN: They are more likely, I think, although not necessarily right away, to speed up the pace of increase if the economy continues strong. And if inflation continues to rise.
HAYS: Economists agree the big challenge now is for the Fed to maintain its delicate balance: raising rates just enough to keep cheap money from overheating the economy.
Kathleen Hays, CNN, New York.
(END VIDEOTAPE)
WHITFIELD: Well, interest rates impact nearly everyone, especially people living on fixed incomes. Are you ready for retirement? And do you know that experts say you'll need at least $15 to $20 in savings to cover each dollar that you'll need for your retirement income.
We're going to get some more retirement tips from our guests today. Mike Reiner is a registered investment advisor who helps seniors make the most of their money. And Jim Miller is in Oklahoma City and he writes "The Savvy Senior," a syndicated newspaper column. He's also penned a book by the same name, full of tips for the seniors.
All right. Thanks to both of you.
JIM MILLER, COLUMNIST/AUTHOR OF " THE SAVVY SENIOR": Thanks for having us, Fredricka.
WHITFIELD: All right.
Well, Mike, let me begin with you.
Let's try to address for those who are already at retirement age, it may be too late to do some of the things, of course, they would have done in their 20s and 30s, but what are some of the, kind of, quick-stop things that they need to think about as they try to stretch their dollars?
MIKE REINER, INVESTMENT ADVISER: First of all, they should meet with someone, sit down, discuss their goals and objectives: key point. From that point on, then they can review their tax deferred dollars, 401k monies, taxable dollars, how to manage them, which ones to derive their income from and build an income portfolio, if that's what they need to have.
WHITFIELD: And they want more immediate returns. Certainly, someone who's already of retirement age doesn't want to try and think of 10 or 15 years down the line, but some of the more immediate needs that need to be met.
REINER: Well, I think also we're also living a lot longer, so they got to think even more than 15 years, possibly 30 years out. So, they have to be more proactive to growing some of their assets, while generating income from some of their other assets.
WHITFIELD: All right.
And Jim, you penned your book, "The Savvy Senior" because you really were inspired by a number of retired persons that you started to work with after your parents passed away. As part of your healing process, you volunteered at this retirement center. Did you find that an awful lot of the retired people were not quite ready for retirement and were almost at a loss as to what to do next?
MILLER: Fredricka, some, some. There are a lot of things out there that can help older people, though. A lot of confusion; there's so much information out there today with the Internet and cable television, that people get confused in the search for a lot of answers they're looking for. But, yes, financially, there are some problems with preparation, and there's a lot of senior debt today, too. So, yes, it can be a problem.
WHITFIELD: All right.
Sylvia (ph) from Long Island is on the telephone with us and has a question about the investment dollars and how to stretch the dollar quickly.
Sylvia (ph)?
SYLVIA (ph), CALLER FROM LONG ISLAND: Yes.
I'm a retiree and I'd like to know of where can I put my money in order to make the most amount of interest? I have a 401k and I have savings. And therefore, I need to know -- I'm not getting much interest on this. So, maybe you can help me?
WHITFIELD: Mike?
REINER: Right.
In our firm, we utilize numbers of products. One big product is closed-in funds, where we diversify them on many different ones. And right now, we've been telling people, and we've been getting people 7 percent dividend returns over the last five years.
Royalty trusts, REITs, other products like that are out there that we do utilize. But we've been able to average 7 percent.
WHITFIELD: And how about CDs? Especially since the interest rate was boosted a quarter of a percentage point. We saw that a number of banks were experiencing, increasing their interest on their CDs. Might that help?
REINER: It's going to take a while. They're still paying low. And the return for a lot of people, like you said earlier, they need to earn more money. And CDs are not putting that out. They are safer than some other investments, but that's why someone needs to sit down with their advisor and determine their goals and objectives and how much risk they are able to take.
WHITFIELD: Jim, of the people that you kind of surveyed or got to know to prepare for your book, did you learn that there were some pretty outstanding regrets, or perhaps even great tips that you learned along the way from some of these seniors?
MILLER: A little bit, Fredricka. I think the big thing is, a lot of people, before they retired, they wished they would have been out of debt. That's such a huge factor today. But, they didn't plan long enough. I mean, it's about time, you know. We need the time to prepare and the time to save. And a lot of people didn't think that far along. So, that's a big regret for a lot of folks that I've talked to.
WHITFIELD: Also on the telephone with us from Oregon, Marin has a question about rental properties, Marin?
MARIN, CALLER FROM OREGON: Yes.
WHITFIELD: What's your question?
MARIN: I own a principal residence and I have two rental properties. All three are paid down to well below halfway, so I'm in the green on them. But I'm going to retire in about five years and I'm told that if I sell my principal residence I won't get hit by taxes. But if I sell one of the rentals, I will.
And my friends are saying, "You should roll over." You know, sell my house, move over into one of the rentals and then turn it over in about three years where you won't get nailed. What's the down side? If I don't do that, how am I going to get nailed on the rental property?
WHITFIELD: Mike, you want to take a stab at that first?
REINER: What will happen is -- what she's suggesting is if you live in your residence for two years, then you have up to, if you're single, $250,000 in capital gains that you will avoid paying tax on. If you sell a rental property -- and again, my partner is a CPA, but we do try to practice that in our firm -- you will have capital gains; you'll have recapture of depreciation. There are a lot of tax situations that you could encumber by having to sell the rental property. Move into it; live there for two years; sell it then and you won't have any capital gains on it.
WHITFIELD: Jim, you have any thoughts on that?
MILLER: That's a little bit out of my realm. I have raging issues. I'll let Mike take that one.
WHITFIELD: OK.
All right, when we come back -- we're going to take a short break for now -- but Jim, maybe you'll take the first caller who has a question about prescription drugs. And we'll answer more e-mail questions and some calls when we come right back.
(COMMERCIAL BREAK)
WHITFIELD: Welcome back to "DOLLAR SIGNS."
Right now, there are more than 35 million seniors in the U.S. That number is expected to double by 2030. Do you have what it takes to be a savvy senior?
Investment Advisor Mike Reiner is here with me in Atlanta and Columnist Jim Miller is joining us from Oklahoma City. And both of you were telling us how seniors can save money and how to protect themselves and how to plan for the future.
Carol from Philadelphia is on the phone. Jim, I promise this call is for you. She has a question about prescription drugs and how to find the best deals out there.
Carol?
CAROL, CALLER FROM PHILADELPHIA: Hi. That's exactly the question. How do I find information that will allow me to buy my prescription drugs with more than any 10 percent discount because it's taking up so much of my little pension.
MILLER: Yes, good question.
There are several different sources out there for you. My savvy senior book actually has a whole comprehensive list of things.
There's a couple of websites that are really great locating sources. One of them is called Benefits Checkup. It's a program that's created by the National Council on Aging and it's benefitscheckup.org. And there's a little form that you fill out online: you tell them your income; you just give them some personal information and then they'll tell you about all the different prescription drug savings programs that you could be eligible for.
There's another program that's through Medicare Rights. It's medicarerights.org. They have a very comprehensive list on Internet programs, discount cards and just a full gamut. So, it's two great resources that will be able to give you lots of information to help you save money on your prescription drugs outside of the Medicare drug card.
WHITFIELD: All right, Jim.
And, Dan, from Raleigh, North Carolina, writes in this question with, "What is the difference in retiring at age 62 versus 65, Mike, regarding the percentage you draw in social security income?
REINER: That's one of the most common questions we're asked in our meetings with clients. And, understand that the government is running short of funds on Social Security, so they're going to try get you to look at the higher dollar amounts.
Some of them range -- I've seen them range from the early 62 to now, it's really, Dan, I think closer to 66, 67 for most people. And there may be a $400 difference a month.
But what you don't realize is that if you start taking it at 62, the smaller amount then and you wait until 65 to start taking it, or 66, it could take you anywhere from 10 to 18 years just to catch up with what you left on the table or didn't take earlier.
So we usually recommend to start taking Social Security as early as you can because they're playing the game that you won't live long enough to make up what you didn't start taking earlier.
WHITFIELD: And you don't necessarily subscribe to: there is a mentality out there where many retired persons say, you know what; they hope to rely solely on their Social Security to help them out. But if we have the statistics that we saw earlier, you need about 70 percent of your existing income in order to live. Social Security doesn't usually provide that.
REINER: No, it doesn't. But Jim hit the nail on the head.
Jim said the key factor: go into retirement with no debt. That gives you a lot more flexibility. Minimize your debt and you have a lot more flexibility on where and how your monies can work for you, and how much you need.
WHITFIELD: Joan (ph) from New York is on the line.
What's your question, Joan (ph)?
JOAN (ph), CALLER FROM NEW YORK: Yes, I'd like to know what could we expect will be a realistic number for the cost of living increase? We're in our mid-50s and ready to retire in six years.
WHITFIELD: Who wants to raise their hand on that one? I don't want to put either one of you on the spot uncomfortably.
REINER: We try to, in our practice, generate enough revenue for a client to where, if they're able to maintain their principle as they continue to derive income and not ever reduce that principle, they're beating inflation anyway.
We don't put as much emphasis on inflation as a lot of people do. I mean, how many homes are you going to buy when you're retired? How many new cars are you going to run out and buy?
So, really where inflation sits is in milk, bread, travel. If you're going to do a lot of traveling, that's probably it, in today's gasoline prices. But we try to maintain the income level and if their principle holds up over the first 10, 15 years, they've beaten inflation pretty well.
WHITFIELD: Except that what's interesting, Jim, is -- and you've probably observed that when you were working in the retirement center -- that there are a lot of retired persons who do think about buying property in a retirement community after they have perhaps even paid off their homes: that they've raised their families. They do want to buy a car.
How are they able to afford it?
MILLER: Savings. You know, they're not going to do it on their Social Security or -- it's about preparing for retirement. It's about having savings; it's about having your Social Security; it's about having a pension; it's about planning ahead and being prepared for this point in your life.
WHITFIELD: And retirement communities aren't generally cheap either, are they?
MILLER: No, it depends where you live. You know, in retirement communities, most of them are rentals. There are communities called CCRCs, or Continued Care Retirement Communities, that have a very expensive buy-in. So they can be quite costly, depending on where you live.
But Fredricka, I did want to interject something about the Social Security question.
WHITFIELD: Sure.
MILLER: About when to start taking the benefits. One thing to keep in mind for people that are working -- and many people work after the age of 62 -- work affects your Social Security benefits. Depending on how much you make, if you're between 62 and full retirement age, then your benefits could be reduced significantly, if not completely.
So people need to keep that in mind and check that out before they do go ahead and commit to taking benefits at a reduced rate, if they are still working. It's a big factor.
WHITFIELD: Americans' life expectancy has increased, and we had a caller who had to go, couldn't stay on the line but had a question about whether the age of 75, which is what her age is, if it's too late to take on a new mortgage? REINER: Simple answer? I'd say yes. Again, it's all relative to how much savings she has, what her cash flow generation is, things like that. But if it's a simple yes or no question, 75 and taking on a mortgage is...
WHITFIELD: Would it be even more difficult to qualify because they will be taking her age into consideration?
REINER: I'm assuming that somebody at 75 that's going to be buying another place has equity built up in their existing place and, putting down enough money, anybody will make them a loan. But they're also going to look at their background of how much income they're generating and how they're going to pay down the loan.
WHITFIELD: All right. Mike and Jim, hold on a minute. We're going to take a short break and we'll be back with more phone calls and more e-mails.
(COMMERCIAL BREAK)
WHITFIELD: Well, welcome back to "DOLLAR SIGNS."
Investment Advisor Mike Reiner and Columnist Jim Miller are answering your retirement questions.
And on the telephone with us, Joe from Georgia, has an investment question.
JOE, CALLER FROM GEORGIA: Thank you very much. I love your program down here in Ellijay. My question is I'm 64 years old: would this not be a time to buy some real good Dow Jones Blue Chips like, say Gillette or Coca-Cola or one of those? What do you think?
WHITFIELD: Mike?
REINER: Jim, I'm a very big -- I love growth management. I do love large cap Blue Chip stocks. I do think the market's a good place. I'm not crazy about the couple that you named but, yes, if you're generating income and that you've got that being done on one side of your platform; the other platform into growth, there's nothing wrong with it.
I have 83-year-old clients that are in growth from stocks and large caps, like you mentioned. But is a great time, I think, to be in the market in equities.
WHITFIELD: All right. And, Jim, let me ask you something that's in your book. You talk about reverse mortgages. What is that?
MILLER: Reverse mortgages: it's a good idea. It can be a good idea for older people that are what you call "house rich, but cash poor." It's a way to liquidate or to take a loan against the equity of your house. You have to be at least age 62 to do it. And it's a better deal for people to look at when they're in their 70s and 80s because the older you are the more money you can borrow against your house. So, it's one of those deals that is something that you want to weigh out carefully, because you are essentially borrowing money against the equity of your house. People that don't have many options and they need cash so they can continue on, it's a definite option and a definite possibility.
WHITFIELD: Is it ever recommended to use that kind of cash to, perhaps, upgrade your existing home or try to make it more senior- friendly?
MILLER: I would think not. Because you're borrowing against the house to put money back into it, I would think that would probably not be the situation to do that.
I did want to say that there's a wonderful source out there. If people are looking at getting a reverse mortgage, HUD offers a free housing counseling service all over the country; great service. You can give them a call, they'll go over all the details of reverse mortgages and they'll tell you the best lending sources in your community. It's a really good resource for people to tap into.
WHITFIELD: Great, and I think we still have time for this last e-mail question from Beverly in Las Vegas.
"I'm on Social Security disability and would like to fund an educational trust for my grandson with my life insurance. How can I do this and do it most economically?"
REINER: I would suggest you set up a trust. You can go see an estate attorney. Design the trust specifically for your life insurance proceeds to go into this trust. The trust dictates how those monies would be utilized. And that would be the most economical and convenient way to do it, I would say.
WHITFIELD: Jim, any final recommendations?
MILLER: I think it sounds good, that really sounds good. There's also the 529 Plan that would be something to take a look at as well.
WHITFIELD: All right. Jim Miller from Oklahoma City, Mike Reiner right here in Atlanta. Thanks to both of you gentlemen for helping us all save money and plan ahead, and for those of us already in retirement, make the most of our bucks.
REINER: Thank you.
MILLER: Thank you so much.
WHITFIELD: All right.
Well, that's all we have time for right now.
Stay with CNN. Up next: "PEOPLE IN THE NEWS." "D-Day: A Call to Courage" CNN looks at the Normandy invasion through the eyes of four U.S. veterans. Then at 6:00 eastern, will Saddam Hussein receive a fair trial? Carolyn discusses the issue with Law Professor Paul Williams.
And at 7:00 eastern, "THE CAPITAL GANG" and I'll be back with a look at the headlines, right after this.
(COMMERCIAL BREAK)
WHITFIELD: Hello, I'm Fredricka Whitfield.
D-Day veterans are featured on "PEOPLE IN THE NEWS." But first, here's what's happening.
Iraq's interim prime minister is said to be considering an amnesty offer for militant insurgents. That's according to a spokesman for Ayad Allawi who says the offer may even be extended to militants who carried out attacks against U.S. forces. The spokesman said such attacks would deserve freedom because the Americans were an occupation force.
Astronomers are pursuing or, rather, perusing some titanic new snapshots taken by the Cassini spacecraft taken during a flyby yesterday. They show cloud cover and landscape features of Saturn's mysterious moon, Titan. Astronomers say it's one of the most fascinating places in the solar system, and they harbor compounds that are the building blocks of life.
He is not the winner of last night's Mega Millions drawing, but $50,000 isn't a bad commission for any salesman. Massachusetts liquor store owner, Jay Patel, sold someone the winning ticket worth $290 million. The multistate lottery won't be able to recognize the winner, whoever it may be, until its offices reopen now, on Tuesday.
More headlines in 30 minutes. Now, "PEOPLE IN THE NEWS."
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Aired July 3, 2004 - 16:30 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
WHITFIELD: "DOLLAR SIGNS" is straight ahead, but first, a look at the headlines.
More clashes today between Palestinians and Israeli forces in Gaza and the West Bank. Palestinians say three people were killed, including an 8-year-old child. Israel confirmed only two of the deaths, saying they were the result of defensive action.
Democratic presidential candidate, John Kerry is working to pick up votes in the American heartland. He spoke to dairy farmers in Independence, Wisconsin today. It's part of his three-day tour through Minnesota, Wisconsin and Iowa.
In the meantime, Vice President Dick Cheney is on a bus tour. His first stop: Parma, Ohio, a Cleveland suburb, where he touted the Bush administration's economic successes and criticized Senator John Kerry. Kerry also is visiting Pennsylvania and West Virginia.
Some cooler weather is helping firefighters in Alaska, but an evacuation order remains in effect for 277 homes northeast of Fairbanks. So far, the wildfires have scorched about 215,000 acres. Officials say the choking smoke has become a health hazard and continues to keep helicopters grounded.
Well, welcome to "DOLLAR SIGNS." The big news in the big money world this week: the Fed raising interest rates for the first time in four years. Does it signal an abrupt end to the era of cheap money, or is there still time to borrow?
Here's our Kathleen Hays.
(BEGIN VIDEOTAPE)
KATHLEEN HAYS, CNN REPORTER: An interest rate hike heard 'round the world as Alan Greenspan and his colleagues at the Federal Reserve boosted the key short term rate to 1.25 percent from 1 percent: what had been the lowest interest rate in more than 40 years. But keep this in perspective: this is still an incredibly low interest rate.
ALAN BLINDER, FORMER FEDERAL RESERVE VICE CHAIRMAN: That's still pretty cheap money to me. I think the era of cheap money, it's on its way out, but it's still here for a while.
HAYS: The Greenspan-Fed's last rate hiking cycle started in the late 1990s as officials worried that a soaring stock market and a roaring economy were boosting inflation. Their key rate topped out at 6.5 percent in May of 2000. But as the stock market bubble burst and thousands lost their jobs, the Fed reversed course and cut rates with a vengeance, especially after the September 11th attacks pushed the economy even deeper into recession. The last rate cut was in June of 2003 and the Fed watched nervously, hoping jobs would begin to grow again.
BLINDER: And the Fed felt that it was its duty to push the economy up out of the hole. And I think they were right in that.
HAYS: Super low interest rates caused auto sales to skyrocket. Home sales heated up, consumers refinanced mortgages at record rates, and aided by tax cuts, the economy started to recover.
With signs of inflation appearing and jobs growing again, the Fed has switched gears. Now the big question on Wall Street is if it keeps hiking rates in small baby steps, or gets more aggressive.
ALICE RIVLIN, FORMER FEDERAL RESERVE VICE CHAIRMAN: They are more likely, I think, although not necessarily right away, to speed up the pace of increase if the economy continues strong. And if inflation continues to rise.
HAYS: Economists agree the big challenge now is for the Fed to maintain its delicate balance: raising rates just enough to keep cheap money from overheating the economy.
Kathleen Hays, CNN, New York.
(END VIDEOTAPE)
WHITFIELD: Well, interest rates impact nearly everyone, especially people living on fixed incomes. Are you ready for retirement? And do you know that experts say you'll need at least $15 to $20 in savings to cover each dollar that you'll need for your retirement income.
We're going to get some more retirement tips from our guests today. Mike Reiner is a registered investment advisor who helps seniors make the most of their money. And Jim Miller is in Oklahoma City and he writes "The Savvy Senior," a syndicated newspaper column. He's also penned a book by the same name, full of tips for the seniors.
All right. Thanks to both of you.
JIM MILLER, COLUMNIST/AUTHOR OF " THE SAVVY SENIOR": Thanks for having us, Fredricka.
WHITFIELD: All right.
Well, Mike, let me begin with you.
Let's try to address for those who are already at retirement age, it may be too late to do some of the things, of course, they would have done in their 20s and 30s, but what are some of the, kind of, quick-stop things that they need to think about as they try to stretch their dollars?
MIKE REINER, INVESTMENT ADVISER: First of all, they should meet with someone, sit down, discuss their goals and objectives: key point. From that point on, then they can review their tax deferred dollars, 401k monies, taxable dollars, how to manage them, which ones to derive their income from and build an income portfolio, if that's what they need to have.
WHITFIELD: And they want more immediate returns. Certainly, someone who's already of retirement age doesn't want to try and think of 10 or 15 years down the line, but some of the more immediate needs that need to be met.
REINER: Well, I think also we're also living a lot longer, so they got to think even more than 15 years, possibly 30 years out. So, they have to be more proactive to growing some of their assets, while generating income from some of their other assets.
WHITFIELD: All right.
And Jim, you penned your book, "The Savvy Senior" because you really were inspired by a number of retired persons that you started to work with after your parents passed away. As part of your healing process, you volunteered at this retirement center. Did you find that an awful lot of the retired people were not quite ready for retirement and were almost at a loss as to what to do next?
MILLER: Fredricka, some, some. There are a lot of things out there that can help older people, though. A lot of confusion; there's so much information out there today with the Internet and cable television, that people get confused in the search for a lot of answers they're looking for. But, yes, financially, there are some problems with preparation, and there's a lot of senior debt today, too. So, yes, it can be a problem.
WHITFIELD: All right.
Sylvia (ph) from Long Island is on the telephone with us and has a question about the investment dollars and how to stretch the dollar quickly.
Sylvia (ph)?
SYLVIA (ph), CALLER FROM LONG ISLAND: Yes.
I'm a retiree and I'd like to know of where can I put my money in order to make the most amount of interest? I have a 401k and I have savings. And therefore, I need to know -- I'm not getting much interest on this. So, maybe you can help me?
WHITFIELD: Mike?
REINER: Right.
In our firm, we utilize numbers of products. One big product is closed-in funds, where we diversify them on many different ones. And right now, we've been telling people, and we've been getting people 7 percent dividend returns over the last five years.
Royalty trusts, REITs, other products like that are out there that we do utilize. But we've been able to average 7 percent.
WHITFIELD: And how about CDs? Especially since the interest rate was boosted a quarter of a percentage point. We saw that a number of banks were experiencing, increasing their interest on their CDs. Might that help?
REINER: It's going to take a while. They're still paying low. And the return for a lot of people, like you said earlier, they need to earn more money. And CDs are not putting that out. They are safer than some other investments, but that's why someone needs to sit down with their advisor and determine their goals and objectives and how much risk they are able to take.
WHITFIELD: Jim, of the people that you kind of surveyed or got to know to prepare for your book, did you learn that there were some pretty outstanding regrets, or perhaps even great tips that you learned along the way from some of these seniors?
MILLER: A little bit, Fredricka. I think the big thing is, a lot of people, before they retired, they wished they would have been out of debt. That's such a huge factor today. But, they didn't plan long enough. I mean, it's about time, you know. We need the time to prepare and the time to save. And a lot of people didn't think that far along. So, that's a big regret for a lot of folks that I've talked to.
WHITFIELD: Also on the telephone with us from Oregon, Marin has a question about rental properties, Marin?
MARIN, CALLER FROM OREGON: Yes.
WHITFIELD: What's your question?
MARIN: I own a principal residence and I have two rental properties. All three are paid down to well below halfway, so I'm in the green on them. But I'm going to retire in about five years and I'm told that if I sell my principal residence I won't get hit by taxes. But if I sell one of the rentals, I will.
And my friends are saying, "You should roll over." You know, sell my house, move over into one of the rentals and then turn it over in about three years where you won't get nailed. What's the down side? If I don't do that, how am I going to get nailed on the rental property?
WHITFIELD: Mike, you want to take a stab at that first?
REINER: What will happen is -- what she's suggesting is if you live in your residence for two years, then you have up to, if you're single, $250,000 in capital gains that you will avoid paying tax on. If you sell a rental property -- and again, my partner is a CPA, but we do try to practice that in our firm -- you will have capital gains; you'll have recapture of depreciation. There are a lot of tax situations that you could encumber by having to sell the rental property. Move into it; live there for two years; sell it then and you won't have any capital gains on it.
WHITFIELD: Jim, you have any thoughts on that?
MILLER: That's a little bit out of my realm. I have raging issues. I'll let Mike take that one.
WHITFIELD: OK.
All right, when we come back -- we're going to take a short break for now -- but Jim, maybe you'll take the first caller who has a question about prescription drugs. And we'll answer more e-mail questions and some calls when we come right back.
(COMMERCIAL BREAK)
WHITFIELD: Welcome back to "DOLLAR SIGNS."
Right now, there are more than 35 million seniors in the U.S. That number is expected to double by 2030. Do you have what it takes to be a savvy senior?
Investment Advisor Mike Reiner is here with me in Atlanta and Columnist Jim Miller is joining us from Oklahoma City. And both of you were telling us how seniors can save money and how to protect themselves and how to plan for the future.
Carol from Philadelphia is on the phone. Jim, I promise this call is for you. She has a question about prescription drugs and how to find the best deals out there.
Carol?
CAROL, CALLER FROM PHILADELPHIA: Hi. That's exactly the question. How do I find information that will allow me to buy my prescription drugs with more than any 10 percent discount because it's taking up so much of my little pension.
MILLER: Yes, good question.
There are several different sources out there for you. My savvy senior book actually has a whole comprehensive list of things.
There's a couple of websites that are really great locating sources. One of them is called Benefits Checkup. It's a program that's created by the National Council on Aging and it's benefitscheckup.org. And there's a little form that you fill out online: you tell them your income; you just give them some personal information and then they'll tell you about all the different prescription drug savings programs that you could be eligible for.
There's another program that's through Medicare Rights. It's medicarerights.org. They have a very comprehensive list on Internet programs, discount cards and just a full gamut. So, it's two great resources that will be able to give you lots of information to help you save money on your prescription drugs outside of the Medicare drug card.
WHITFIELD: All right, Jim.
And, Dan, from Raleigh, North Carolina, writes in this question with, "What is the difference in retiring at age 62 versus 65, Mike, regarding the percentage you draw in social security income?
REINER: That's one of the most common questions we're asked in our meetings with clients. And, understand that the government is running short of funds on Social Security, so they're going to try get you to look at the higher dollar amounts.
Some of them range -- I've seen them range from the early 62 to now, it's really, Dan, I think closer to 66, 67 for most people. And there may be a $400 difference a month.
But what you don't realize is that if you start taking it at 62, the smaller amount then and you wait until 65 to start taking it, or 66, it could take you anywhere from 10 to 18 years just to catch up with what you left on the table or didn't take earlier.
So we usually recommend to start taking Social Security as early as you can because they're playing the game that you won't live long enough to make up what you didn't start taking earlier.
WHITFIELD: And you don't necessarily subscribe to: there is a mentality out there where many retired persons say, you know what; they hope to rely solely on their Social Security to help them out. But if we have the statistics that we saw earlier, you need about 70 percent of your existing income in order to live. Social Security doesn't usually provide that.
REINER: No, it doesn't. But Jim hit the nail on the head.
Jim said the key factor: go into retirement with no debt. That gives you a lot more flexibility. Minimize your debt and you have a lot more flexibility on where and how your monies can work for you, and how much you need.
WHITFIELD: Joan (ph) from New York is on the line.
What's your question, Joan (ph)?
JOAN (ph), CALLER FROM NEW YORK: Yes, I'd like to know what could we expect will be a realistic number for the cost of living increase? We're in our mid-50s and ready to retire in six years.
WHITFIELD: Who wants to raise their hand on that one? I don't want to put either one of you on the spot uncomfortably.
REINER: We try to, in our practice, generate enough revenue for a client to where, if they're able to maintain their principle as they continue to derive income and not ever reduce that principle, they're beating inflation anyway.
We don't put as much emphasis on inflation as a lot of people do. I mean, how many homes are you going to buy when you're retired? How many new cars are you going to run out and buy?
So, really where inflation sits is in milk, bread, travel. If you're going to do a lot of traveling, that's probably it, in today's gasoline prices. But we try to maintain the income level and if their principle holds up over the first 10, 15 years, they've beaten inflation pretty well.
WHITFIELD: Except that what's interesting, Jim, is -- and you've probably observed that when you were working in the retirement center -- that there are a lot of retired persons who do think about buying property in a retirement community after they have perhaps even paid off their homes: that they've raised their families. They do want to buy a car.
How are they able to afford it?
MILLER: Savings. You know, they're not going to do it on their Social Security or -- it's about preparing for retirement. It's about having savings; it's about having your Social Security; it's about having a pension; it's about planning ahead and being prepared for this point in your life.
WHITFIELD: And retirement communities aren't generally cheap either, are they?
MILLER: No, it depends where you live. You know, in retirement communities, most of them are rentals. There are communities called CCRCs, or Continued Care Retirement Communities, that have a very expensive buy-in. So they can be quite costly, depending on where you live.
But Fredricka, I did want to interject something about the Social Security question.
WHITFIELD: Sure.
MILLER: About when to start taking the benefits. One thing to keep in mind for people that are working -- and many people work after the age of 62 -- work affects your Social Security benefits. Depending on how much you make, if you're between 62 and full retirement age, then your benefits could be reduced significantly, if not completely.
So people need to keep that in mind and check that out before they do go ahead and commit to taking benefits at a reduced rate, if they are still working. It's a big factor.
WHITFIELD: Americans' life expectancy has increased, and we had a caller who had to go, couldn't stay on the line but had a question about whether the age of 75, which is what her age is, if it's too late to take on a new mortgage? REINER: Simple answer? I'd say yes. Again, it's all relative to how much savings she has, what her cash flow generation is, things like that. But if it's a simple yes or no question, 75 and taking on a mortgage is...
WHITFIELD: Would it be even more difficult to qualify because they will be taking her age into consideration?
REINER: I'm assuming that somebody at 75 that's going to be buying another place has equity built up in their existing place and, putting down enough money, anybody will make them a loan. But they're also going to look at their background of how much income they're generating and how they're going to pay down the loan.
WHITFIELD: All right. Mike and Jim, hold on a minute. We're going to take a short break and we'll be back with more phone calls and more e-mails.
(COMMERCIAL BREAK)
WHITFIELD: Well, welcome back to "DOLLAR SIGNS."
Investment Advisor Mike Reiner and Columnist Jim Miller are answering your retirement questions.
And on the telephone with us, Joe from Georgia, has an investment question.
JOE, CALLER FROM GEORGIA: Thank you very much. I love your program down here in Ellijay. My question is I'm 64 years old: would this not be a time to buy some real good Dow Jones Blue Chips like, say Gillette or Coca-Cola or one of those? What do you think?
WHITFIELD: Mike?
REINER: Jim, I'm a very big -- I love growth management. I do love large cap Blue Chip stocks. I do think the market's a good place. I'm not crazy about the couple that you named but, yes, if you're generating income and that you've got that being done on one side of your platform; the other platform into growth, there's nothing wrong with it.
I have 83-year-old clients that are in growth from stocks and large caps, like you mentioned. But is a great time, I think, to be in the market in equities.
WHITFIELD: All right. And, Jim, let me ask you something that's in your book. You talk about reverse mortgages. What is that?
MILLER: Reverse mortgages: it's a good idea. It can be a good idea for older people that are what you call "house rich, but cash poor." It's a way to liquidate or to take a loan against the equity of your house. You have to be at least age 62 to do it. And it's a better deal for people to look at when they're in their 70s and 80s because the older you are the more money you can borrow against your house. So, it's one of those deals that is something that you want to weigh out carefully, because you are essentially borrowing money against the equity of your house. People that don't have many options and they need cash so they can continue on, it's a definite option and a definite possibility.
WHITFIELD: Is it ever recommended to use that kind of cash to, perhaps, upgrade your existing home or try to make it more senior- friendly?
MILLER: I would think not. Because you're borrowing against the house to put money back into it, I would think that would probably not be the situation to do that.
I did want to say that there's a wonderful source out there. If people are looking at getting a reverse mortgage, HUD offers a free housing counseling service all over the country; great service. You can give them a call, they'll go over all the details of reverse mortgages and they'll tell you the best lending sources in your community. It's a really good resource for people to tap into.
WHITFIELD: Great, and I think we still have time for this last e-mail question from Beverly in Las Vegas.
"I'm on Social Security disability and would like to fund an educational trust for my grandson with my life insurance. How can I do this and do it most economically?"
REINER: I would suggest you set up a trust. You can go see an estate attorney. Design the trust specifically for your life insurance proceeds to go into this trust. The trust dictates how those monies would be utilized. And that would be the most economical and convenient way to do it, I would say.
WHITFIELD: Jim, any final recommendations?
MILLER: I think it sounds good, that really sounds good. There's also the 529 Plan that would be something to take a look at as well.
WHITFIELD: All right. Jim Miller from Oklahoma City, Mike Reiner right here in Atlanta. Thanks to both of you gentlemen for helping us all save money and plan ahead, and for those of us already in retirement, make the most of our bucks.
REINER: Thank you.
MILLER: Thank you so much.
WHITFIELD: All right.
Well, that's all we have time for right now.
Stay with CNN. Up next: "PEOPLE IN THE NEWS." "D-Day: A Call to Courage" CNN looks at the Normandy invasion through the eyes of four U.S. veterans. Then at 6:00 eastern, will Saddam Hussein receive a fair trial? Carolyn discusses the issue with Law Professor Paul Williams.
And at 7:00 eastern, "THE CAPITAL GANG" and I'll be back with a look at the headlines, right after this.
(COMMERCIAL BREAK)
WHITFIELD: Hello, I'm Fredricka Whitfield.
D-Day veterans are featured on "PEOPLE IN THE NEWS." But first, here's what's happening.
Iraq's interim prime minister is said to be considering an amnesty offer for militant insurgents. That's according to a spokesman for Ayad Allawi who says the offer may even be extended to militants who carried out attacks against U.S. forces. The spokesman said such attacks would deserve freedom because the Americans were an occupation force.
Astronomers are pursuing or, rather, perusing some titanic new snapshots taken by the Cassini spacecraft taken during a flyby yesterday. They show cloud cover and landscape features of Saturn's mysterious moon, Titan. Astronomers say it's one of the most fascinating places in the solar system, and they harbor compounds that are the building blocks of life.
He is not the winner of last night's Mega Millions drawing, but $50,000 isn't a bad commission for any salesman. Massachusetts liquor store owner, Jay Patel, sold someone the winning ticket worth $290 million. The multistate lottery won't be able to recognize the winner, whoever it may be, until its offices reopen now, on Tuesday.
More headlines in 30 minutes. Now, "PEOPLE IN THE NEWS."
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