The Biggest Fear in Retirement, and the Golden Solution
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.
Jeff: I like your plan, Dennis. But do you worry about the government confiscating our retirement accounts, or a portion of them?
Dennis: We've all read the reports concerning those issues. The most frequent angle is not confiscation in the traditional sense, but the idea that they'll force us to keep a certain percentage of our retirement portfolio in "safe" government Treasuries—for our own good, of course.
Can you imagine what would happen if they tried that—even a mere 10%? Think of the sell orders that would hit the stock market from investors liquidating equity positions to replace them with government IOUs. It would clobber the stock market. And a lot of folks with Roth IRAs would just take their money out as opposed to holding worthless government paper.
Jeff: What about international storage of precious metals in a retirement account?
Dennis: I am now a strong advocate of making sure you have plenty of money offshore. There are some aspects of Obamacare, for example, that the public is unaware of and could be detrimental to not just investors, but to anyone who has a pressing medical need.
Jeff: How so?
Dennis: At our recent Casey Summit, one of the speakers was Dr. Elizabeth Lee Vliet, an MD and health reform activist. Dr. Vliet agrees on what many have said about surviving the new healthcare law: she believes seniors will be hit the hardest and in many cases denied care.
A recent article in Money Morning quoted Betsy McCaughey, former lieutenant governor of New York and author of the recent book, Beating Obamacare—Your Handbook for Surviving the New Health Care Law. She says, "Hip and knee replacements and cataract surgery will be especially hard to get from Medicare in the months ahead." She warns seniors to get those types of procedures done now before Obamacare goes into effect January 1.
That may not even be the worst part. There are concerns that once care is denied by the government, absent a couple very minor exceptions, the doctor won't be allowed to provide that service, even if you can pay for it out of your own pocket.
While the full impact of the Affordable Care Act is not yet known, I think these are valid concerns. I understand that these are strong statements, and some people claim they're not true, but by the time we find out, it might be too late.
Jeff: If it is true, how could it impact one's retirement planning?
Dennis: It would mean that a lot of Americans would have to go offshore for treatment that's been denied or delayed. Which means you would not only need the money to do so, but would have to have some of it already outside the country.
Jeff: I think I know why…
Dennis: A day may be coming where it could be very difficult to get funds transferred from your domestic bank account to a medical facility in another country. At the least, there will be severe restrictions in doing so, but I think the more likely scenario is some form of capital controls, where it will be illegal to transfer any funds outside the US.
Jeff: I agree.
Dennis: And what if you don't have any assets stored outside your country? You're stuck—you may not be able to get that procedure.
While we don't know for sure how it will shake out yet, imagine this possible scenario: you need a medical procedure to improve your quality of life or maybe even extend your life, but it's been denied by Obamacare. You have the funds to pay for it, but the doctor is not authorized to perform it. You find a state-of-the-art facility in a nearby country that will perform the procedure for you, with no waiting list and probably at a lower cost—but when you attempt to wire funds to the medical facility, it's denied by the US government.
Pity the poor person who might need a hip replacement, sitting in the waiting room of an offshore hospital and not being able to get the treatment because he can't get money out of the country.
Jeff: Very scary, Dennis.
Dennis: The bottom line is that while our fears may not come to pass, we still need to take steps to ensure against these possibilities. There are lots of good reasons why prudent investors should hold some of their assets offshore—the fact that we're even discussing the possibility of currency controls and how they relate to healthcare just reinforces the point that it's not something to put off.
This is why I believe placing some assets offshore could be the most important healthcare decision a person can make. We all believe in internationalizing our assets, and now I feel an even greater sense of urgency.
And this is where precious metals make perfect sense. You can easily and cheaply store gold and silver internationally and sell them in an emergency if you need to. That's exactly what I'm doing.
Offshore precious metals storage isn't a benign investment, either. My wife and I recently went to Panama and spent some time with the president of the world-class Johns Hopkins facility there. If I needed a procedure done outside the US, I wouldn't hesitate to use this facility. But think about this: the currency in Panama is US dollars, so if our dollar experiences high inflation, the cost of care in Panama will rise. But by having metals stored offshore, we can mitigate that loss in buying power.
One of the keys to enjoying retirement is good health—who wants to spend the last decade of their life popping pills while in constant pain, when you have the ability to live a much higher quality of life? I don't.
Jeff: Good point. More capital controls are almost certainly coming.
Dennis: I spoke with Nick Giambruno of International Man, who went to Cyprus with Doug Casey and investigated what happened when they instituted currency controls earlier this year. Basically, on a Friday night, after all the banks were closed, they shut down the entire banking system and had currency-sniffing dogs at every point of entry. No money was allowed to be taken out of the country.
And you probably heard that the International Monetary Fund recommended just two weeks ago that a "capital levy" be placed on citizens with a "positive net wealth." The part in the article that really bothered me was this: "Democrats and Republicans … are entertaining closed-door schemes designed to, once again, relieve Americans of their property."
Jeff: As a retirement specialist, what do you recommend?
Dennis: It is better to be safe than sorry. We don't know for certain that currency controls are coming, but as a retirement planner, I have to ask your readers, will you be prepared if they do?
Keep in mind that offshore health care is generally less expensive than in the US. The quality in many places is every bit as good, and wait times will almost certainly be less than what will soon be the reality here. Medical tourism is a booming industry for these very reasons.
The bottom line for me is that internationalization of a portion of our assets is vital. And like I said, precious metals are the best place to start. Offshore storage has the added advantage of inflation protection—should our dollar become worthless, our gold and silver holdings will appreciate accordingly. I think this is now a crucial part of retirement planning.
I can tell you that my wife and I have a good part of our nest egg offshore. In fact, I used to view the offshore choice as a risky one—now I see not having assets offshore as a much greater risk. I encourage all who will listen to diversify internationally—and soon.
Jeff: I appreciate your candor, Dennis. I've been able to spend some time getting to know you since you started work at Casey Research, and I know you are very sincere and only want to help your readers.
Dennis: Thank you, Jeff. If I can help one person avoid a catastrophe, it will be worth it. If something drastic happens like what occurred in Cyprus, I suppose some might thank me for warning them. I obviously would prefer the situation not deteriorate to that level, but I think we would all sleep better knowing we're prepared for the worst-case scenario.
Jeff: Do you cover things like this in Miller's Money Forever?
Dennis: Our mission is to show people how to build their nest egg and then make it last so they can sleep well at night and not have to worry about money. Our portfolio is doing very well—but a retirement portfolio is much more than just owning a few stocks that are performing. Our analysts have been doing what Doug Casey recommends: looking where others are not. We have found some safe, solid income builders that will perform regardless of the direction the market takes. In our last analyst meeting, we identified some candidates for next month's issue, too. When you combine strong yield with safety, it's pretty easy to get excited about it.
I encourage anyone who plans on having a quality retirement to watch my short video on the right side of our page. In my humble opinion, Miller's Money Forever is probably the best $8.25 per month you'll ever spend.
Jeff: I'm sure anyone serious about their retirement will want to do so. As I've told you, my father is a big fan of yours. Thank you for your insights, Dennis.
Dennis: My pleasure, Jeff.
Gold and Silver HEADLINES
Mexico's Senate Approves Reforms Including 7.5% Mining Tax (BNamericas.com)
Mexico's senate gave general approval to the government's plan to increase tax revenues. Although the details haven't been finalized, the new law will impose a new 7.5% tax on mining sales, minus certain deductions, plus a 0.5% tax on gross revenues of gold, silver, and platinum mines. The good news is that this new tax can be deducted from corporate income tax; the bad news is that exploration expenses now need to be deducted over a ten-year period, which will hit pure exploration companies pretty hard.
The government approved the new tax structure because the mining industry supposedly "does not pay a fair contribution to the state." However, what politicians don't understand is that this will almost certainly result in a drop in investment in the country, especially in exploration projects. Major producers Grupo México and Goldcorp also warned they will focus future growth outside of Mexico, depending on the final details.
Until recently, Mexico was one of few countries left in the world that didn't charge taxes on mining production or profits, so some say they are simply coming in line with other countries. Are we still investing there? We'll tell you in tomorrow's BIG GOLD.
Quebec is among the safest mining jurisdictions in the world, with stable laws and a pro-mining regulatory structure. It shows: last year investment in Quebec reached a record $5.3 billion, a 30% rise over 2011. But this year, for the first time in 10 years, mining investments are expected to drop. In spite of the estimated 10% decline, 2013 will still be the province’s second best year in terms of mining investment.
According to Quebec's Institute for Statistics, the explanation lies mostly with the exploration sector, which is, so far, 28% lower than last year and 46% below 2011. "Gold remained the most sought-after commodity by Québec mining companies, but its share plummeted below 50% for the first time since 2007," said the Institute.
The decline in investment, especially in the gold exploration sector, is mostly attributed to low metals prices and the pullback in exploration efforts many companies have made as a result.
How Gold Protects Investors' Purchasing Power (Mining.com)
Despite constant money printing, inflation remains low in many developed countries, which has affected gold's perceived status as a hedge against inflation. But this is short-term sentiment only; history has demonstrated gold is a long-term strategic asset that protects purchasing power and helps manage risk. The price has been heavily influenced by developed markets, while its long-term demand is driven by a more diverse set of factors, many of which are linked to emerging markets. The infographic shows how investors, seeking a well-balanced portfolio, can benefit by having gold comprise just 2-10% of their portfolio.
This Week in International Speculator and BIG GOLD—Key Updates for Subscribers
- More excellent news from this advanced-stage gold exploration company, with an extraordinary number of holes drilling into new high-grade mineralization outside of the current resource model. We expect the new hits will add value to the company, while its shares are still relatively on sale.
- This exploration company's super high-grade deposit model has come under criticism, but the company continues delivering great drill results that show good consistency and more gold zones. We'll soon know if we were right to back management on the controversy. Given the low share price, it's a great speculation for those not long already or who have not yet averaged down.
- This producer reported Q2 revenue higher than a year ago, at a time when gold prices are much lower. The company is among the lower-cost gold producers in the industry to boot.
- This gold producer also reported higher revenues and lower costs. Management is focused on maintaining strong margins and producing cash flow in the current environment, a critical element with gold prices where they are.
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