The Tax Day Prompt: Review Your Retirement Plan

Most of us like to be reminded of the things we often forget. For instance, changing the batteries in your smoke detectors is often prompted by the change of the clocks. And despite numerous reminders to do these sorts of regular reviews of our retirement plans, specifically those of us who have the defined contribution sort, we seldom do.

Right around the end of the year is bad and not because of Christmas; because many mutual funds make distributions. Right around the beginning of the year is bad because we tend to break resolutions before we even have a chance to do anything. But doing so around tax-time may be the best solution. Your 401(k) after all, is a taxable (or should I say, tax-deferred) event.

Read more here

Times have changed: Has your retirement plan?

I am alarmed with the amazing frequency of the most recent downturns and even more amazed at the swiftness of the recoveries. There was a time when, if the downturn was severe, the recovery took decades.  Now it seems as though it take less and less time from the top to the next top. This means that there will be more risk, more often. Running from it, may not prove to be the wisest move in the long run.

Among all of these age groups, diversity among as many asset classes as possible is still key. We are no longer in the “set it and forget it” world of retirement planning. The only way to keep your plan healthy is to run towards the danger.  It is the new retirement plan. 

A Change in Municipal Bond Ratings

This article previously appeared as a new feature at Target2025.com: Repercussion- A Retirement Review.

We are far from free of the clutches of the Great Recession.  The hold that the recent economic downturn has had on numerous types of investment portfolios will continue, even if, one the surface, it seems to abated somewhat in the equities markets.  The recent decision by Fitch, a bond ratings company, to revisit their grading strategies of municipal bonds may be simply cloaking the possible maturity wall facing bond investors.

Municipal bonds have historically been rated slightly lower when compared to corporate bond issues.  While the default rate for munis is much lower (0.7% compared to 2.1% default by corporate bonds) these debt securities used for public financing of roads, water, sewer and other public projects have often received a slightly lower rating.  This despite what appears to be a robust fiscal balance which includes increasing tax revenue, the ability to enforce revenue collection, control over expenses gives the municipality better flexibility, and the right of local communities  to tap reserves when needed.

The question is simple: will this change in ratings by Fitch (following a recent change initiated by Moodys), often moving munis up a grading notch provide better transparency or simply complicate the ability for buyers of these bonds to tell the difference?  This is of particular concern for those close to retirement looking to exert more stable control over their accumulated assets, fixing their projected returns and protecting capital.

It is our belief that munis will be approaching the same "bubble status" as mortgage backed securities attained just two years ago.  While Fitch claims to be looking at the long-term ("The aspiration is for Fitch’s ratings to demonstrate broadly comparable levels of default patterns over long periods") they may be looking at more historical data on the sector rather than the possibilities that in the near future, these securities might be facing the same trouble as the rest of the bond market might face in the coming years.

The "Maturity Wall", a point in the future when a great deal of corporate and Treasury bond issues mature and demand for debt might be overwhelmed by too many choices, often at higher prices and lower yields. Seeing that possibility will force investors to flock to munis if they feel as though they are immune.  They may well be in just as much trouble if the projects they are undertaking fall short of funding from the federal government.

More from Dan Seymour writing in BondBuyer