DIG

Short term view above. Top red line is resistance at 62.00 Bottom red line is support at 26 and some change. Bought at 34.25 this morning and closed at 36.83

Below is the longer term view. Red lines are at the same levels on both charts.


Dig goes up 200% of the Dow Jones US Gas & Oil Index. It is near support and has a long way to go before it hits resistance. Bought this morning at $34.25. Support is at about $27 and the first round of resistance isn't until $62. This means there is about 3.5 to 1 ratio of return to risk which makes it acceptable.

Your 401k, Recession's Perfect Sacrifice

Think that if you put your head in the sand and wish this recession away, that your 401k will be OK? It might be more like 0K (that’s ZERO K for those of you in Rio Linda).

The last recession came like a thief in the night. Those napping awoke and found they lost a majority of it. Many began calling it their 41k.

Don’t think that the Wall Street types are going to take pity on you just because you don’t care about what’s going on. These guys are great at telling you to buy and hold while they are moving their money around trying to catch the latest greatest deal. It’s ironic that you’re limited to moving the funds around in your 401k because the fund’s managers were caught moving theirs around EVERY day. Most of the people I talk to don’t even know HOW to move the funds around in their 401k!

I know it’s hard to know exactly what to do. It’s not a perfect world. We don’t even know if we’re actually IN a recession or not. In fact the government types that officially determine when recessions start and end can’t agree. In the last four recessions, it took them on average 8 months to let us know it started. Many recessions don’t even LAST 8 months! They are even worse letting us know when they’re done. On average, it took them almost 2 years to let us know the recession was over. If THEY don’t know, how are WE supposed to?

Think that the company running your 401k cares about you? When was the last time someone from there called you and said you should re-think the way your 401k is invested? When was the last time ANY financial type called you and said ANYTHING about your 401k? Maybe they’re too busy paying attention to their own. It’s probably the largest single investment you own. It’s also probably the single most ignored thing you own. I saw people who went into the last recession with $100,000 and came out with $30,000. I wonder how long it took them to earn the $70,000 they just gave away; a heck of a price to pay for not caring.

Don’t let them put your hard earned, perfect 401k onto the alter of Recession. Instead, sacrifice a little of your time and pay attention to your 401k, it will keep it from becoming THE Suckers Perfect Sacrifice.

Recession History

Since history seems to repeat itself, maybe we could learn something about the current possible recession by studying this country’s recession history. Since pictures are supposed to be worth a thousand words, we will look at the recession history in charts.

I work with investments, so I’m particularly concerned with recessions due to the fact they can have a very negative impact on investment account values. I’m going to look at the recession history with particular focus on how each recession affected the Dow Industrials Stock Index. I have Dow Index data back to 1930, so we will start there.

I have known for some time that the market has seems to operate in approximately 15 year cycles. The market goes up for 15 years, then seems to go sideways for the next 15 years. This growth and then consolidation pattern happens frequently through out history as we will soon see.

This first chart (figure 1), shows the Dow Industrials index from 1930 through 1945.

Figure 1

The light blue areas are times of recession. The first one, however, was the great depression. We all know the effect the depression had on stock values. The Dow lost over 88% of its value between 1929 and 1933. Notice the nice rebound it made following the depression. It increased 345% over the next 4 years. We will see there is a theme in the recession / expansion cycle. Recessions are relatively short and can be very violent to investors in the stock market. The expansion period following recessions are much longer and historically quite good.

One thing you need to be extremely aware of though. Numbers and percentages can be deceiving. I just mentioned that the index lost 88 percent, but then gained 345%. Sounds like you made up all your losses and then some. Not quite.

The dirty little secret to investment losses is this: if you lose 50% of your portfolio, you need to make 100% just to break even. This is an ugly little fact, but lets look at it in real life. If you had $100,000 and lost 50%, you would be left with only $50,000. How much do you have to earn on your $50,000 to get back to even? You need to earn another $50,000. This is 100% of what you currently have. You lost 50% and must gain 100% just to break even.

Let’s look at our chart and see how this works. In 1929 the Dow had a high of around 380 and in 1933 a low of about 48. This is an 88% decrease in value. Over the next 4 years it went from 48 to 187. This is a 345% increase. Sounds like you made up the 88% loss and then some. Unfortunately you have only gained back just over half of what you lost. This also is a recurring theme. When a recession takes huge bites out of portfolio values, it normally takes many years just to break even again. Not to get ahead of myself, but the Nasdaq has only regained about half of what it lost during the last recession. And This is 7 years later! The Dow and S&P 500 took about 6 years to finally break even. The kind of time periods required to recover definitely make the study of the recession history worth while.

Figure 2

Now that some of the back ground work is complete lets look at the next 15 years, from 1945 through 1960 (Figure 2). We will see that it was about in 1955 that the Dow finally got back to where it was before the great depression. This was a very long 25 year wait. Imagine the poor retirees that retired before the depression and never again regained their original portfolio value!

Remember the last 15 years were mostly down then sideways (1930 through 1945). This next 15 year time period had very mild recessions with the worst only causing a 15% drop in the Dow. Overall, the Dow gained 267% over this 15 years. A very good reward for a minimum amount of risk. This leads us to the next 15 years, 1960 to 1975 (Figure 3).

Figure 3

The 15 year cycle is definitely in effect. The last 15 years were very tame yet had a nice return. This 15 years was not for the feint of heart. Gain was very little over the period, but volatility was killer. The period started out with a wonderful 75% gain, but gave it all back by the end. As you can see, the recessionary periods were very violent. The reward available in this market was much smaller than the risk.

Thus far, we had a 15 year period that was horrible, one that was very nice, then another horrible one. Without looking ahead, we might guess that the next 15 year time period would be another nice one. Let’s see.

Figure 4

Yep, looks just beautiful. Began with a 6 year period of consolidation (going sideways), but when it was done consolidating, it moved up very nicely. It moved from around 800 in ’82 to 2800 by 1990. This represents a 250% increase for the period. The volatility for the period was pretty tame. At least if you look at the volatility caused by recession. The largest pullback in value was the ’81 to ’82 recession which was about 18%. The big pullback in August of ’87 was about 30%, but wasn’t caused by recession and didn’t take that long to be regained; all in all a very fruitful 15 years.

This would lead me to believe that the next 15 years would be tumultuous again as the market needs to digest its gains. Let’s take a peek at Figure 5.

Figure 5

The roll the market had going continued for the first half of this period. It gained 300% in just 8 years. This was more in the first half than the others gained in their entire 15 year period. This didn’t go un-noticed however, and the market promptly took back a healthy 35% through the recessionary period. It took until mid way through 2006 to finally get back to even from the highs seen in ’99. Once this was achieved, however, the Dow just kept going. It extended it’s gains through the expansion period, hitting new highs.

Which brings us to today. There is much talk about the beginning of another recession. We’re at the end of a period that should have shown consolidation, but instead had another large run up. This run up wasn’t without sizeable volatility. Notice we’ve just broken the support line drawn. I’ve drawn support lines throughout the charts. Had you sold upon breaking the support lines over the years, you would have saved yourself many heart aches and wouldn’t have had to wait as long to break even again.

In summary, I would say that the recession history points to our next recession causing havoc on the Dow. When will the next recession be or are we already in it? I’ve covered this dilemma in another article. I think we are already in it. I believe the Dow just broke support and has a lot of potential to continue down
If you’re concerned about your 401k in this market environment, visit 401k plan facts. Help is available.

Recession History

The old saying “History doesn’t always repeat itself, but often rhymes”, is based more on fact than fiction. By studying the Recession History, you should better understand how current recessions may affect your financial life today.

I focus on recessions simply because they have a dramatic effect on 401k balances and investments in general. During the last recession, which was officially from March of 2001 through November 2001, the major market indexes plummeted. The Nasdaq Index declined over 70% from it’s high within a year surrounding the recession. This index still hasn’t recovered. It is still only half of where it once was.

Could you have avoided this downfall by studying the Recession History? Maybe, but maybe not. Let’s look at the problem. The National Bureau of Economic Research (NBER) is the official agency that determines when recessions begin and end in history. Since recessions have such a detrimental effect on our investments, wouldn’t it be nice if they would notify us when one is beginning? Yes it would, but they don’t. The Nasdaq Index lost over 43% from its high before the NBER determined we were in our last recession. It took them 9 months after the beginning of the recession to announce it had begun. Is this a fluke? Unfortunately not. The official notification of the beginning of the last 4 recessions came an average of 228 days after they had already begun. This is an 8 month delay.

The way numbers work, if you lose 50% of your portfolio, you must earn 100% just to break even. If you had $100,000 and lost 50% ($50,000), you are left with $50,000. You must double this (100%) in order to break even. This is why it seems to be twice as hard to regain money after losing it. It took the Dow Industrial Index and S&P 500 Index around 6 years to get back to even after the last recession.

Let’s pretend you’ve lost 43% of your portfolio and are determined NOT to lose any more. You sell your stock funds and put your account into the safety of the money market. Your account is now safe for the rest of the recession. Will knowing the US Economic Recession History help you determine when the recession is over? Once the recession is over, you definitely want to move back into stocks so that you don’t miss the next increase in the market. After all, you need to make almost 100% just to break even!

NBER announced the last recession was over on July 17, 2003. Unfortunately they announced it was over in November of 2001! Yes they didn’t determine the last recession was over until nearly 2 years later. Had you had your investments strapped down for the winter winds of recession, you could have missed the excellent recovery period that typically follow recessions. The end of the last 4 recessions were officially announced an average of 522 days (17 months) after they were over.

Studying the Recession History may be helpful for some, but I don’t find it very helpful in managing investment portfolios. I find that tracking Supply vs. Demand in the investment markets is a much better way to protect assets. When supply begins to outweigh demand, simply change the portfolio to a more conservative stance. This usually happens near the beginning of recessions and you have plenty of time to switch your portfolio to safety. The opposite occurs near the end of recessions. Demand shows back up and you begin to change the portfolio to one of moderate risk.
The upside to recessions is the fact that periods of expansion last about 5 times longer than recessionary periods. There were 10 Recessionary cycles since 1945. The recession side of these cycles lasted on average 10 months. The expansion side lasted on average 57 months. If you can protect your money during the 10 recessionary months you won’t have to spend a lot of the expansion months trying to get back to even. You can instead be exploring new highs for the portfolio.
For help on securing your 401k form recession without missing the next run up in the market, visit 401k plan facts.

US Economic Recession History

The old saying “History doesn’t always repeat itself, but often rhymes”, is based more on fact than fiction. By studying the US Economic Recession History, you should better understand how current recessions may affect your financial life today.

I focus on recessions simply because they have a dramatic effect on 401k balances and investments in general. During the last recession, which was officially from March of 2001 through November 2001, the major market indexes plummeted. The Nasdaq Index declined over 70% from it’s high within a year surrounding the recession. This index still hasn’t recovered. It is still only half of where it once was.

Could you have avoided this downfall by studying the US Economic Recession History? Maybe, but maybe not. Let’s look at the problem. The National Bureau of Economic Research (NBER) is the official agency that determines when recessions begin and end in history. Since recessions have such a detrimental effect on our investments, wouldn’t it be nice if they would notify us when one is beginning? Yes it would, but they don’t. The Nasdaq Index lost over 43% from its high before the NBER determined we were in our last recession. It took them 9 months after the beginning of the recession to announce it had begun. Is this a fluke? Unfortunately not. The official notification of the beginning of the last 4 recessions came an average of 228 days after they had already begun. This is an 8 month delay.

The way numbers work, if you lose 50% of your portfolio, you must earn 100% just to break even. If you had $100,000 and lost 50% ($50,000), you are left with $50,000. You must double this (100%) in order to break even. This is why it seems to be twice as hard to regain money after losing it. It took the Dow Industrial Index and S&P 500 Index around 6 years to get back to even after the last recession.

Let’s pretend you’ve lost 43% of your portfolio and are determined NOT to lose any more. You sell your stock funds and put your account into the safety of the money market. Your account is now safe for the rest of the recession. Will knowing the US Economic Recession History help you determine when the recession is over? Once the recession is over, you definitely want to move back into stocks so that you don’t miss the next increase in the market. After all, you need to make almost 100% just to break even!

NBER announced the last recession was over on July 17, 2003. Unfortunately they announced it was over in November of 2001! Yes they didn’t determine the last recession was over until nearly 2 years later. Had you had your investments strapped down for the winter winds of recession, you could have missed the excellent recovery period that typically follow recessions. The end of the last 4 recessions were officially announced an average of 522 days (17 months) after they were over.

Studying the US Economic Recession History may be helpful for some, but I don’t find it very helpful in managing investment portfolios. I find that tracking Supply vs. Demand in the investment markets is a much better way to protect assets. When supply begins to outweigh demand, simply change the portfolio to a more conservative stance. This usually happens near the beginning of recessions and you have plenty of time to switch your portfolio to safety. The opposite occurs near the end of recessions. Demand shows back up and you begin to change the portfolio to one of moderate risk.

The upside to recessions is the fact that periods of expansion last about 5 times longer than recessionary periods. There were 10 Recessionary cycles since 1945. The recession side of these cycles lasted on average 10 months. The expansion side lasted on average 57 months. If you can protect your money during the 10 recessionary months you won’t have to spend a lot of the expansion months trying to get back to even. You can instead be exploring new highs for the portfolio.

To protect your 401k portfolio through the recession, go to 401k plan facts.

401k Subscription

• For those of you who have your life savings in your 401k but aren’t sure how it should be invested, a 401k subscription is right for you. A good 401k subscription provider will help you keep your 401k allocated properly for the current market conditions. The methods used to determine proper allocation should be based upon time tested and proven investment techniques. This sounds simple, but investing is a very tedious topic. It is very difficult for even seasoned financial analysts to get a handle on the condition of the market at any given time.
  
  There are tons of 401k providers; those who offer the 401k plan to the employer. Unfortunately once the 401k is implemented with the employer, very little effort is spent by the provider helping the employee choose the investment options right for him or her. This is where a good 401k subscription fills the gap. The recent changes in 401k’s brought about by the Federal Government mentioned this gap. They found there should be more assistance to employees in allocating their 401k’s. They realize that Social Security is less than funded and shouldn’t be relied upon. They also saw that 401k’s are sorely underfunded for the average worker. How well is your 401k funded? That depends upon 8 key factors:
• Your current age.
• Current Income (assume you want to make as much in retirement as before).
• Projected Inflation Rate.
• What percentage of your current income is being saved for retirement.
• Current Retirement Savings Balance
• The age to which you want your retirement income to last (Life expectancy plus a couple years at least – I use 90).
• Rate of return prior to retirement.
• Rate of return after retirement (usually a little more conservative investor after retirement).
  
  Based upon the relationship of these 8 factors, you can determine at which age you can retire. Hopefully the answer you get says you can retire sooner rather than later. Here is a wonderful Retirement Age Calculator that allows you to input these factors. It immediately projects your retirement age and gives you the option of printing out a spreadsheet with the annual cash flow and savings amounts.
  
  Once you play with this calculator, you will see how important it is to get a good return within your 401k. A good 401k subscription service can provide assistance in doing this. When selecting this service, make sure it fits your risk profile. I’ve seen many people who thought they were more aggressive investors than they actually were. All it takes is a bear market to let you know exactly how aggressive you AREN’T. Unfortunately by then, it takes many years for you just to break even again. A good 401k subscription service will offer programs that have double digit returns with risk levels that will keep you comfortable and in the program for the long haul.
  
  John M. Norquay

Economy Carberator

A good carberator regulates fuel into an engine. The Fed Chairman, the economy carberator regulates money supply into the national economic engine. You and I are the economy carberator and regulate cash flow into the engine we call our households. We each are carberators at our different levels.

A good carberator keeps the engine running smoothly and efficiently. When more power is demanded, more fuel must be supplied. Effectively, the carberator manages supply and demand for the engine. When supply and demand get out of whack, things get messy.

If the national economy wants to run at 100 miles per hour, but there's only enough fuel (money supply) to go 55, then there's a problem. The Fed Chairman has a decision to make. He could do the right thing and tell the economy it must only go 55 to be safe and operate smoothly, or he could appease the demands of the economy and give it more fuel. Unfortunately the extra fuel is borrowed and must be payed back with interest. This means a time will come when we won't even be able to go 55 anymore while we catch back up.

Recessions (sometimes depressions) are the time periods when we're catching back up. When we allow our politicians to continually spend more than our country makes, we must know that there will come a time when the piper must be paid. This is why it seems that every decade includes a recession. We should demand our politicians spend our Country's money with the same principles we must when we run our individual households.

Currently when our nation needs more money to pay the bills, we simply PRINT MORE! If only we could do that at home.

When money supply increases, inflation increases. It only makes sense that the more dollars are printed, the less each existing dollar is worth. When George Washington suffered through the winter because he couldn't afford supplies for his troops, he blamed the local merchants for charging too much. What he failed to realize was the government printed so much money to fund the war effort that each of the existing dollars just didn't go very far any more. The merchants were as much the victim as George and his troops. The same thing happened to confederate money in the civil war. Money supply over the last year (measured by M3) increased over 15%. Someone must be printing a lot of money to pay their bills!

As a result, inflation has increased the last couple quarters more than it has in years. Our financial system is in crisis due to excess greed. The dollar is in crisis due to excess greed. If our economy's carberator doesn't get fixed soon we will have a very tough stretch ahead. Probably a deep recession if not depression and rampant inflation to boot.

You can help your fuel efficiency by visiting my 401k investment tool site at 401k Plan Facts.

August Newsletter

WOW! Just when you think the market is in a free fall, the Fed comes in and attempts to prop it up. It will be interesting to see if the market interprets this attempt as worthy or as simply an undersized band aid on a large flesh wound.

October Newsletter

Things don't seem to be adding up in this market. . .

November Newsletter

The Dow breaks primary support - Indicates official down trend

A market never goes straight up or down. If it is in
an up trend, it tends to go up, then pullback, go up higher than last time
and pull back, but stay higher than the last pull back. Bottom line is
an up trend will have higher highs and higher lows. On the same note,
a down trend will have lower highs and lower lows. We are always
looking for changes in the trend. One of the ways to tell if a
positive trend has turned negative is by watching support areas. If
the price stops going down at the same place it stopped going down last
time, then the support level is working. If it breaks through the
previous support levels, then weakness has crept into the trend.

The primary trend of the Dow has been up for a long time.
The big support level that we have been watching has just been broken.
This level was at 12,800 and was broken Monday the 26th. There was an
immediate bounce after this break, but will probably only turn out to be
that. As they say, even dead cats will bounce (a market saying, I
actually LIKE cats!).

In my humble opinion, the Dow has been running on empty all
year. Very few of the indicators I follow substantiated the new highs
the Dow was putting in. Every thing pointed to volatility and
volatility normally points to some kind of crash. It appears the Dow
race car has finally run out of gas and has bald tires, but the race isn't
yet complete.

Recession AND Inflation

I have said all year that I felt a recession is coming on.
We have been very conservative because of this. I have never been more
certain now that this is the case. The chart below shows the historic
recessions going back to 1965. These are the purple areas in the chart
below. The purple line is the difference between the blue and yellow
lines. You will see that each time this line hits zero, a recession
follows. You will see it just hit zero earlier this year. As
they say, financial history doesn't repeat itself, but it rhymes quite well.
If this is true, a recession should be just around the corner.

Inflation usually isn't a problem during recessions.
As people spend less money in the economy, prices don't continue going up
very rapidly. This probably won't be the case during this next
recession. As you have felt in your pocket book, oil prices and food
prices haven't been going down or even staying the same. They are at
all time highs and have had the tendency to stay there. There are many
reasons why I believe inflation will not only continue to increase but
increase rapidly. This email isn't where I'm going to go into that
detail. Maybe I can touch base on that within a week or two. The
bottom line is that the market will be effected in a very negative manner
and we will be addressing it accordingly.

Banking Crisis Deepens

Anecdotal evidence of severe problems within the banking industry continues,
with stories abounding of troubled institutions and instruments, and of
back-door actions taken by worried central banks. As the U.S. recession
deepens, the problems with structured financial instruments will widen
quickly, extending far beyond the issues with problem mortgages. The Federal
Reserve can be expected to spend every dollar it needs to create in order to
maintain the solvency and stability of the domestic banking system.

The Fed have their hands tied now. If they decrease the Fed Funds rate
to stimulate the economy, it will accelerate the dollar sell off.

What's Next?

We will continue to act defensively. The short positions we have held
in the RIA accounts have paid off handsomely. We may even increase
these positions in the future. Accounts that can't be shorted will sit
in short term bonds or cash until a better opportunity arises. If the
market decides to change it's mind and start going back up, we will
re-evaluate. Until then, we will be patient and see what happens.

You can check out my website at 401k plan facts

Unfavorable Market Conditions

The Market

The market was in an overbought condition last week, but the latest pullback has fixed that. At this point, the next short term move is a toss-up. This suits our hedge position perfectly. Yesterday, for example, the Dow was down over 170 points. Most of our acccounts, however, were pretty close to break-even. Today, the market was slightly up, but we enjoyed a very nice increase in account values.

Why hedge? When the market hasn't shown a clear sign what it is going to do next, it would be nice to have positions that will do BETTER than the market if it advances. Since it may also go the other way, it would be nice to have positions that will make us money there as well. By effectively buying positions that help offset each other, we are taking a "Market Neutral" stance. If we are lucky enough to do it right, in an increasing market, our out-performers will beat the market enough that they will pull our hedge positions along well enough to at least match the upward return of the market.

If the market decides to go south, our hedge positions will increase in value and hopefully our stock positions won't go down too dramatically, thus decreasing our overall account value less than the market declines. Properly executed, our hedged portfolio should give us major market return with substantially decreased volatility. The perfect answer for a time when the market is giving us no short term direction.

Intermediate Term: Down

An ominous scenario is potentially setting up. If the market decides to pull back further and break the lows it just set a couple weeks ago (remember the last low broke the lows set this summer) and then immediately spikes up 200 to 400 points -- then look out. This is the pattern that historically has preceeded crashes. I have no idea if this will follow through, but I will definitely be watching.

In the end of November, the Dow broke a major support level before bouncing back (see #1 in Figure 1). The piercing of this major support level changed our long term trend from positive to negative. Now, we would expect any upward movements in the market to top out lower than the high of the last upward movement (notice last top in Figure 1 is lower than previous top). On the same hand, the next low should be lower than the last. Lower highs and lower lows are the definition of a down trend.

Figure 1

Let's look at how the Dow acted through the last recession and compare how it is setting up now. Figure 2 shows how the major lows consistently broke below the low prior to it. These are numbered from 1 to 7. The highs were initially trying to go higher, but were turned away at the previous highs. Eventually they began to top out lower than the previous highs.

Figure 2

Recession Watch

Partial reason for the nice bounce off the support levels last week were news from the Fed. They hyped further liquidity to the financial markets by buying back $40 billion of treasuries (known as "repos"). Unfortunately, the rest of the story is that these were coming due anyway this week. $39 billion of repos were due and will be simply getting a different maturity date. The market finds this out and we get a couple major down days back to back. We've heard the heralding of hundreds of billions being pumped into the market to prop up the ailing financial system. In all reality, only about 18 billion has been added.

The Fed is doing us a great disservice. They are inflating our currency at rates that haven't been seen for 30 years. This results in DECREASING it's value. This causes the economic hangover to be worse when they slow down the inflating process. The opposite of inflating is depressing. Yes, depressions are the natural product of wild, out of control periods of inflating. Historically, the Fed won't let the cycle take it's full course and it will begin inflating again before a full blown depression occurs, causing a mild depression or "recession".

Where do we go from here?

I truly believe we will be taking off long positions soon and replace them with further shorts such as SKK, SKF and MZZ.

You can check out my website at 401k plan facts

Funds and Recession

Recessions have historically had devastating effects on funds in the market place. For a perfect example, we only have to look back to the last recession. Officially this started in 2000 and ended in 2002. Funds peaked in March of 2000 and didn’t bottom until October of 2002. This is only a 2 year period. Looking back it doesn’t seem long, but when you’re watching your funds go down nearly every day, two years seems like an eternity. The Dow Industrial Average dropped over 50% during that period of time while the Nasdaq Index dropped nearly 75%. The good news is that 6 years later, The Dow finally broke even again. The bad news is the Nasdaq has only regained about half what it lost; 8 years later.

Is it a fluke that this kind of fund carnage happened during the last recession? The resounding answer is NO. Funds and Recession seemed to be joined at the hip. Recession goes away and funds seem to be fine. Recession shows up and funds take a hit. You would think as soon as a recession shows its ugly head, everyone would want to leave the market and get into something a little safer, like cash or bonds. Well, that’s a little easier said than done. Most economists don’t agree that we’re in a recession until its already over. The official agency that lets us know of a recession doesn’t usually let us know it’s started until 18 months later. Usually they don’t last much longer than 18 months! When the officials can’t agree or get it right in a timely manner, how is someone with a REGULAR job supposed to?

Since funds and recession are so closely linked, and the government or economists aren’t going to tell us what is going on until it is too late, how is a guy supposed to protect his assets through a recession? I think the answer to that is in tracking supply and demand in the stock market. For help with this go to economy carberator .

401k withdrawal at 59 1/2

Getting ready to retire? Many would like to retire as soon as they can begin receiving retirement income without a penalty. You can take a 401k withdrawal at 59 ½ but this has potential problems.

One of the largest hurdles I’ve seen standing between someone wanting to retire and actual retirement is healthcare insurance. Many potential retirees feel their investments are large enough to support them through retirement, if only they didn’t have to pay for their own healthcare between now and age 65, when Medicare kicks in.

You can take a 401k withdrawal at 59 ½ years old without penalty, but unless your employer will pay for your healthcare after retirement, you still have 5 ½ years to pay for it yourself. This is a long scary gap. At this age, you’re not a spring chicken anymore and a major illness can run into the hundreds of thousands of dollars. This is why most feel they can’t scrimp on health coverage at this age. You would really need a much larger 401k balance in order to fund these extra years.

The second largest hurdle is Social Security. Although you can take a 401k withdrawal at 59 ½ years old, you still don’t receive any Social Security payments until you’re at least 62. Again, unless your company has a special program (very few do) you will have to take extra income from your 401k to make up for what you aren’t yet getting from Social Security. This is a 2 ½ year gap. This, again, requires your 401k balance to be larger if you want to retire earlier.

In a perfect world, you have these major issues addressed and don’t need to wait for government programs to kick in before you can retire. Now the question becomes “At what age can I comfortably retire?” Most would assume that since you can take a 401k withdrawal at 59 ½ without penalty that this is the age you can retire. This is correct to a degree, but very incorrect if you are willing to jump through a couple extra governmental hoops.

Within the internal revenue code is a little section called 72(t). If you believe you have a large enough retirement balance to retire prior to reaching age 59 ½, under this section you can begin taking a retirement income without penalty. Again, you must jump through their hoops. You must follow certain guidelines as to how much you have to take and for how long, but at the end of the day, if you have a large enough retirement balance, these rules give plenty of flexibility to begin a comfortable early retirement.

The largest variable to early retirement is the rate of return within your retirement account. You can retire much sooner if your retirement account makes more. How much more and how it is reflected on your retirement age is a topic for another day. If you would like to run some different scenarios for yourself, a very useful retirement age calculator is found here: Retirement Age Calculator
In summary, you can begin receiving retirement income at any age without penalty. You just need to follow the special 72(t) guidelines. Your focus then should be turned to the rate of return you expect for your portfolio in determining a comfortable retirement age.