Tag: Future Plan

What I’m Watching This Week – 18 August 2014

Published on by dredheadz

The Markets

Last week domestic equities managed to build on the gains of the week before. The Dow industrials finally returned to positive territory for the year, and the Nasdaq had the kind of weekly gain it hasn’t seen since late May. Meanwhile, geopolitical tensions helped spur interest in the relative safety of the benchmark 10-year Treasury, cutting the yield to its lowest level since June 2013.

Market/Index

2013 Close

Prior Week

As of 8/15

Weekly Change

YTD Change

DJIA

16576.66

16553.93

16662.91

.66%

.52%

Nasdaq

4176.59

4370.90

4464.93

2.15%

6.90%

S&P 500

1848.36

1931.59

1955.06

1.22%

5.77%

Russell 2000

1163.64

1131.35

1141.65

.91%

-1.89%

Global Dow

2484.10

2532.94

2575.60

1.68%

3.68%

Fed. Funds

.25%

.25%

.25%

0 bps

0 bps

10-year Treasuries

3.04%

2.44%

2.34%

-10 bps

-70 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Headlines

  • Auto and department store sales declined in July, while grocery stores, gas stations, restaurants, clothing stores, and building supply stores all saw gains. That left total retail sales essentially flat for the month, though the Commerce Department said they were up nearly 4% from a year earlier.
  • Wholesale prices rose 0.1% in July, according to the Bureau of Labor Statistics. That was slightly less than June’s 0.4% increase, and cut the annual wholesale inflation rate for the last 12 months to 1.7% from June’s 1.9%. The biggest monthly increases were seen in transportation and warehousing, which were up 0.5%, while wholesale food costs rose 0.4% and energy prices fell 0.6%.
  • Led by a 10.1% increase in auto manufacturing, U.S. industrial production rose 0.4% in July, according to the Federal Reserve. The overall increase represented the sixth straight monthly gain. Even aside from the surge in autos, production was up 0.2%, and the percentage of the nation’s manufacturing capacity that’s being used rose to 79.2%.
  • After the Fed’s Empire State manufacturing survey hit a four-year high, the August report showed that improvement had slowed substantially as the reading fell 11 points to 14.7.
  • Sluggish economic recovery in the 18-member eurozone stalled completely during Q2 as growth fell from 0.2% in Q1 to 0. More worrisome was the -0.2% decline in both the German and Italian economies, which are two of the tentpoles of the region’s economy. The larger 28-member European Union saw a 0.2% increase in gross domestic product, and the official EU statistics agency said GDP had risen in both areas compared to a year earlier (0.7% for the eurozone and 1.2% for the EU).

Eye on the Week Ahead

Speeches at the Fed’s annual Jackson Hole conference could influence markets given the internal debate over the timing of interest rate hikes. Investors will continue to monitor the situations in Ukraine, Gaza, and Iraq, and housing and consumer inflation data also are on tap.

Data sources: Economic: Based on data from U.S. Bureau of Labor Statistics (unemployment, inflation); U.S. Department of Commerce (GDP, corporate profits, retail sales, housing); S&P/Case-Shiller 20-City Composite Index (home prices); Institute for Supply Management (manufacturing/services). Performance: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indices listed are unmanaged and are not available for direct investment.

Members of the Military: Estate Planning

Published on by dredheadz

Whether you’re a veteran or just starting out in the military, planning and preparing your estate is of vital importance. Why is estate planning so critical? Because, at your death, you leave behind the people you love and all your worldly goods. Without proper planning, you have no say about who gets what, and more of your property may go to unintended recipients instead of your loved ones. If you care about how and to whom your property is distributed, you need to prepare your estate plan.

Who needs estate planning?

Estate planning is important regardless of your financial situation. In fact, it may be more important if you have a smaller estate because the final expenses could have a much greater impact on your estate. Wasting even a single asset may cause your loved ones to suffer from a lack of financial resources.

Your estate plan may be relatively simple and inexpensive, such as preparing a will to distribute basic accounts and assets and designating beneficiaries for your life insurance policy(s) and retirement account(s). If your estate is larger or you have more assets, the estate planning process may be more complex and expensive. In any case, you’ll probably need the help of professionals, including an estate planning attorney, a financial planner, an accountant, and possibly an insurance professional.

Issues to consider

Your estate plan should be geared to your particular circumstances. Some factors that may impact your estate plan include whether:

  • You own real estate, especially if you own property in different states
  • You have minor children or children with special needs
  • You are married
  • You intend to contribute to charity
  • Your estate might be subject to estate tax
  • You become disabled or incapacitated and are unable to manage your financial affairs

How do you begin planning your estate?

It generally begins with an analysis of what you own. The type of assets and property you own can affect how you plan your estate. Next, formulate goals and objectives for your estate plan. Decide whom you want to inherit from your estate. Consider whether you want to place any restrictions or conditions on an inheritance (e.g., specify a replacement should a named beneficiary predecease you; control distributions to minors or someone you consider a spendthrift).

Consider how taxes might impact your estate. Taxes that may factor into your estate plan include federal and/or state gift and estate taxes, state inheritance taxes, and federal and/or state income taxes.

Additional goals and objectives you might consider include whether you want to:

  • Provide for your family’s financial security
  • Ensure that your property is preserved and passed on to your beneficiaries
  • Avoid disputes among family members
  • Provide for family members’ education
  • Determine who will manage your assets and property after your death and who will be responsible for carrying out your wishes (e.g., executor, personal representative, trustee)
  • Avoid probate
  • Minimize estate and other taxes
  • Plan for your potential incapacity

Common estate planning tools

Many strategies and tools available that can help you carry out your estate plan. In most cases, these tools are governed by specific state law, as well as federal law in some instances. Therefore, you should consult with a knowledgeable estate planning attorney to ensure that your legal documents and estate plan comply with the appropriate laws. The following is a brief description of several common tools and strategies:

  • Last will and testament: A legal document that describes to whom and how you want your property distributed, names the person or entity that will administer your estate, and specifies who will care for your minor or disabled child.
  • Trust: A separate legal entity that can hold property and assets, for the benefit of one or more people or entities (e.g., spouse, children, charities), and can be implemented while you’re living or at your death, usually through your will. Trusts may incur up-front costs and often have ongoing administrative fees.
  • Durable (financial) power of attorney: A document in which you name someone to act on your behalf for a specific purpose (e.g., sell your home) or to manage your financial affairs should you become unable to do so yourself.
  • Health-care directives: A health-care proxy and living will allow you to express your wishes about the administration of medical treatment and life-prolonging measures during times when you cannot otherwise express those intentions.
  • Guardian for minors: Generally included in your will, this is the person who will be responsible for the care and protection of your minor children.
  • Beneficiary designations: Often overlooked, this important function applies to financial products you own such as life insurance, annuities, and qualified savings accounts such as your Thrift Savings Plan and IRAs, and supersede instructions in a will.
  • Funeral and burial arrangements: Your wishes for your funeral, the disposition of your remains (e.g., cremation, burial), and organ donations .may be expressed in your will, trust, or in a separate writing.

Survivor benefits

Whether you are receiving military retirement pay, a private pension, or income from the military or private employment, your death could cause serious financial hardship to your family. A major part of estate planning is developing strategies and contingencies to provide for your family after your death. Servicemembers have several benefits including life insurance, death gratuity, and survivor benefits that may be available to help survivors should the unthinkable happen.

  • Life insurance: Offered through the military in several forms for active members and veterans including Servicemembers’ Group Life Insurance, Veterans’ Group Life Insurance, and Veterans’ Mortgage Life Insurance.
  • Death gratuity: A $100,000 death gratuity is paid to the next of kin of members of the military who die while on active duty or within 120 days of separation.
  • Dependency and Indemnity Compensation (DIC): A monthly benefit paid to eligible survivors of servicemembers who die while on active duty, or veterans whose death is due to service-related injury or disease, or veterans whose death is nonservice-related but who are receiving or entitled to receive VA compensation for service-related disabilities and who are totally disabled. Other eligibility requirements may also apply.
  • Survivor Benefit Plan (SBP): A pension-type plan in the form of an annuity that can be purchased to pay your surviving spouse and children a monthly payment based on a percentage of your retired pay. If you are on active duty, retirement-eligible, and have a spouse and/or children, they are automatically protected under SBP at no cost to you while still on active duty. You must pay premiums for coverage once you retire from the military.
  • TRICARE: Health insurance is available to certain eligible surviving family members of deceased active duty or retired service members. Conditions for eligibility may apply and costs for coverage and benefits available may vary based on the sponsor’s military status at the time of death and whether the family member is a surviving spouse or child.
  • Additional benefits: Available for survivors of veterans and servicemembers who die while on active duty includes burial in a national, state, or military installation cemetery (this is also available to spouses and dependent children of the servicemember), headstone or marker provided by the government, burial flag, and reimbursement for a portion of burial expenses.

What I’m Watching This Week – 11 August 2014

Published on by dredheadz

The Markets

Investor indecision about the future of equities prices, coupled with light summer trading volumes, led to volatility across the board last week. Friday’s 186-point rally gave the Dow some relief after two down weeks, though not enough to nudge the index into positive territory for the year. The small caps of the Russell 2000 had their strongest week since early July, though they also remained down year-to-date. Meanwhile, geopolitical tensions increased demand for the relative security of the benchmark 10-year Treasury bond, sending its yield down. However, riskier high-yield bonds saw some selling pressure.

Market/Index 2013 Close Prior Week As of 8/8 Weekly Change YTD Change
DJIA 16576.66 16493.37 16553.93 .37% -.14%
Nasdaq 4176.59 4352.64 4370.90 .42% 4.65%
S&P 500 1848.36 1925.15 1931.59 .33% 4.50%
Russell 2000 1163.64 1114.86 1131.35 1.48% -2.77%
Global Dow 2484.10 2561.22 2532.94 -1.10% 1.97%
  1. Funds
 .25% .25% .25% 0 bps 0 bps
10-year Treasuries 3.04% 2.52% 2.44% -8 bps -60 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Headlines

  • Growth in the U.S. services sector accelerated in July. The Institute for Supply Management’s gauge of activity in service industries rose 2.7% to 58.7%–its highest level since the index was launched in 2008.
  • New orders at U.S. manufacturers were up 1.1% in June. The Commerce Department said the gain boosted factory orders to their highest level since record-keeping began in 1992 and that June was the fourth month of the last five to see an increase.
  • A drop in oil imports helped cut the U.S. trade deficit by 7% in June, according to the Commerce Department. U.S. exports rose 0.1% to their highest level on record, while imports dropped 1.2%.
  • Italy’s economy fell back into recession, falling 0.2% in Q2; it was the second consecutive quarterly contraction. The GDP of the eurozone’s third largest economy also was down 0.3% from the same quarter a year earlier.
  • In retaliation for new European Union and U.S. economic sanctions, Russia imposed a one-year ban on a variety of food imports and said it’s considering prohibiting EU and U.S. flights from Russian airspace over Siberia.
  • As expected, the European Central Bank left key interest rates unchanged. President Mario Draghi said measures already adopted are having an effect and that it was too early to assess the potential impact of Russia’s ban on European food imports.
  • Eleven of the largest U.S. banks must rewrite their proposed plans for handling a potential bankruptcy. The Federal Reserve and Federal Deposit Insurance Corp. said the plans contained “no credible or clear path” to achieve an orderly failure and avert any need for the type of bailouts provided during the 2008 financial crisis. The banks have until July 2015 to submit revised so-called “living wills.”
  • Fair Isaac Corp. said it will change the way it calculates credit scores, underweighting unpaid medical bills and excluding overdue bills that are subsequently paid or settled with a collection agency. The changes could make it easier to get credit.

Eye on the Week Ahead

With the Q2 earnings season winding down, retail sales and wholesale inflation data will vie with global conflicts for investor attention. Speeches by two members of the Fed’s monetary policy committee are likely to review the arguments for and against accelerating an interest rate hike. Finally, options expiration at week’s end plus trading volumes that are likely to remain relatively low could mean additional volatility.

What I’m Watching This Week – 4 August 2014

Published on by dredheadz

The Markets

A strong GDP report, generally positive corporate earnings, and a slightly more optimistic outlook from the Fed couldn’t offset the ongoing stream of bleak news about geopolitical problems and investor desire to take some money off the table. The Russell 2000’s recent losing streak spread to the large caps as the S&P 500 had its worst week of the year. Argentina’s default on sovereign debt helped prompt a selloff on Thursday, which cut 317 points from the Dow and sent it back into negative territory for the year.

Market/Index 2013 Close Prior Week As of 8/1 Weekly Change YTD Change
DJIA 16576.66 16960.57 16493.37 -2.75% -.50%
Nasdaq 4176.59 4449.56 4352.64 -2.18% 4.22%
S&P 500 1848.36 1978.34 1925.15 -2.69% 4.15%
Russell 2000 1163.64 1144.72 1114.86 -2.61% -4.19%
Global Dow 2484.10 2630.48 2561.22 -2.63% 3.10%
Fed. Funds .25% .25% .25% 0 bps 0 bps
10-year Treasuries 3.04% 2.48% 2.52% 4 bps -52 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Headlines

  • The initial estimate of 4% U.S. economic growth in Q2 showed a strong rebound from Q1’s 2.1% contraction. However, the Bureau of Economic Analysis’s initial estimate is subject to revisions over the next two months (for example, the initial Q1 estimate showed a 0.1% gain). Increases in exports and consumer spending (especially on durable goods) as well as more business inventory investment and state/local government spending drove the gains in gross domestic product.
  • The unemployment rate ticked up slightly to 6.2% in July but was still at its lowest level in almost six years and more than a full percentage point below a year earlier. The Bureau of Labor Statistics also said the 209,000 new jobs added to payrolls in July roughly equaled the average monthly job gains over the last year; though that’s down from the pace of the last three months, July was the sixth straight month in which 200,000+ new jobs have been added.
  • Home prices continued to improve, but at a slower pace. All the cities in the S&P/Case-Shiller 20-City Composite Index report issued last week saw increases, but the 9.4% increase over last May was down from the previous month’s 10.8% year-over-year gain.
  • The Federal Reserve’s monetary policy committee continued to reduce its bond purchases, cutting them to $25 billion a month. The Federal Open Market Committee statement noted increased spending by both consumers and businesses as well as improvements in employment, though it also said there continues to be slack in the labor market. It also said that as long as inflation remains below 2%, its target interest rate is likely to remain at its current level for “a considerable time” after new bond purchases end completely. However, the moderately more positive language plus hawkish comments from one committee member helped elevate concerns about the timing of rate increases.
  • Both the European Union and the United States attempted to increase pressure on Russia to end support for Ukrainian rebels. Previous sanctions have been largely directed toward individuals; the new measures are expected to affect Russian banks, the country’s oil industry, and the military. The EU agreement is designed to isolate Russia economically without hampering Europe’s fragile economic recovery.
  • After Argentina failed to reach a settlement with large holders of $13 billion of sovereign bonds that have already been restructured once, Standard & Poor’s declared it in default on other interest payments. Coupled with a quarterly loss reported by Portugal’s second-largest bank, Argentina’s debt problems once again raised questions about the resilience of emerging economies.
  • Trustees of the fund that finances Medicare reported that slower growth in federal health-care spending as a result of the Affordable Care Act appears to have helped delay by four years the date by which Medicare is expected to run out of money. The trustees now see that occurring in 2030. Social Security is expected to be solvent until 2033, but trustees of the Social Security Trust Fund said that unless action is taken, a shortfall might require cuts in disability benefits starting in late 2016.
  • According to the Commerce Department, U.S. construction spending slumped nearly 2% in June. However, that was still 5.5% higher than in June 2013. Both public and private spending on residential and commercial building fell.
  • The Institute for Supply Management said U.S. manufacturing continued to accelerate in July as its survey of purchasing managers rose to 57.1 from 55.3 (any number above 50 indicates expansion).

Eye on the Week Ahead

Investors will try to gauge whether last week’s downdraft was the start of something bigger or a much-needed breather for a lengthy bull market.

Data sources: Economic: Based on data from U.S. Bureau of Labor Statistics (unemployment, inflation); U.S. Department of Commerce (GDP, corporate profits, retail sales, housing); S&P/Case-Shiller 20-City Composite Index (home prices); Institute for Supply Management (manufacturing/services). Performance: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK);www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indices listed are unmanaged and are not available for direct investment.

Monthly Market Review – July 2014

Published on by dredheadz

The Markets

Encouraging economic news, generally positive Q2 corporate earnings reports, and stable Federal Reserve policy had to battle multiple geopolitical conflicts for investor attention. Both the S&P 500 and Dow industrials managed to set fresh all-time highs early in July, but the S&P managed to follow through to additional records while the Dow slipped back under 17,000. After five straight positive months, both succumbed to profit-taking that left them under water for July. That handed the year-to-date lead to the Nasdaq (barely), while the small caps of the Russell 2000 gave up most of the previous month’s gains and joined the Dow in negative territory for the year. Global conflicts and instability in some emerging markets also hurt the Global Dow.

After a June rally, gold prices slid back under $1,300 an ounce in July. A stronger dollar allowed the price of oil to drop below $100 a barrel by the end of the month. Meanwhile, the benchmark 10-year Treasury yield ended the month up slightly from where it began.

Market/Index 2013 Close Prior Month As of 7/31 Month Change YTD Change
DJIA 16576.66 16826.60 16563.30 -1.56% -.08%
Nasdaq 4176.59 4408.18 4369.77 -.87% 4.63%
S&P 500 1848.36 1960.23 1930.67 -1.51% 4.45%
Russell 2000 1163.64 1192.96 1120.07 -6.11% -3.74%
Global Dow 2484.10 2605.62 2579.30 -1.01% 3.83%
  1. Funds
 .25% .25% .25% 0 bps 0 bps
10-year Treasuries 3.04% 2.53% 2.58% 5 bps -46 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

The Month in Review

  • The U.S. economy seems to have rebounded from Q1’s 2.1% contraction, growing 4% in Q2. However, that initial estimate of gross domestic product is subject to revisions by the Bureau of Economic Analysis over the next two months (for example, the initial Q1 estimate showed a 0.1% gain). Increases in exports and consumer spending (especially on durable goods) as well as more business inventory investment and state/local government spending drove the GDP gains.
  • The unemployment rate remained at its lowest level in almost six years (6.2% in July), which is more than a full percentage point below a year earlier. The Bureau of Labor Statistics also said the 209,000 new jobs added to payrolls in July roughly equaled the average monthly job gains over the last year.
  • Manufacturing data was generally encouraging. New orders for U.S. manufacturers were at their highest level since late 2013, according to the Institute for Supply Management, and the ISM’s gauge of the services sector showed growth continuing, though at a slightly more moderate pace. Durable goods orders, especially business orders for capital equipment, rebounded from a May slump, and the Federal Reserve said U.S. manufacturing output rose for the fifth straight month.
  • The housing market showed signs of fatigue. According to the Commerce Department, sales of new homes plunged more than 8% in June and were 11.5% lower than a year earlier. Home prices measured by the S&P/Case-Shiller 20-City Composite Index continued to improve, but the 9.4% increase over last May represented a slower pace than in April. And wet weather in the South helped slow housing starts by 9.3%. However, the National Association of Realtors® said home resales were up 2.6% for the month.
  • Both the European Union and the United States tried to increase pressure on Russia to end support for Ukrainian rebels by adopting new measures that are expected to affect Russian banks, the country’s oil industry, and the military.
  • Higher gas prices helped send consumer inflation up 0.3% and wholesale prices up 0.4% in June. That put annual inflation rates at 2.1% (consumer) and 1.9% (wholesale), according to the Bureau of Labor Statistics. Meanwhile, retail sales rose 0.2% in June, though the Commerce Department doesn’t adjust the figures for price increases such as those seen in food costs.
  • The Securities and Exchange Commission announced new rules governing money market mutual funds that are intended to guard against a sudden run on such funds. The rules, which will be implemented over time, will require a floating net asset value for funds serving institutional investors (those serving individuals will continue to strive for a stable $1 per share price, though there will continue to be no guarantees that they will always do so). The SEC also would allow non-governmental money market funds to impose restrictions during a crisis to deter withdrawals.

Eye on the Month Ahead

The dog days of August will likely keep trading volumes light, which can sometimes heighten volatility. The Federal Reserve will pause its Great Unwind of quantitative easing, likely picking up again in September, and global conflicts could continue to counterbalance any economic good news.

What I’m Watching This Week – 20 July 2014

Published on by dredheadz

The Markets

In a week that saw mostly mixed economic data and generally positive earnings reports, markets posted mixed results as well. While tech and international stocks posted slight gains, the Dow Jones Industrial Average lost a little less than 1% after Friday’s 123-point drop. Small caps continued their slump, and the S&P 500 finished the week flat despite hitting new records mid-week.

Market/Index 2013 Close Prior Week As of 7/25 Weekly Change YTD Change
DJIA 16576.66 17100.18 16960.57 -.82% 2.32%
Nasdaq 4176.59 4432.15 4449.56 .39% 6.54%
S&P 500 1848.36 1978.22 1978.34 .01% 7.03%
Russell 2000 1163.64 1151.61 1144.72 -.60% -1.63%
Global Dow 2484.10 2622.25 2630.48 .31% 5.89%
Fed. Funds .25% .25% .25% 0 bps 0 bps
10-year Treasuries 3.04% 2.50% 2.48% -2 bps -56 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Headlines

  • Consumer prices rose 0.3% in June. According to the Bureau of Labor Statistics, the increase was driven largely by higher gas prices, which rose 3.3% and accounted for two-thirds of the increase. By comparison, last month’s rise in inflation was more broad-based. Energy prices were mixed in June: electricity prices rose, while natural gas and fuel oil prices fell. Food prices rose modestly, while the index for all items except food and energy rose by a slight 0.1%. For the 12 months ended in June, inflation rose 2.1%.
  • Existing-home sales climbed 2.6% in June, reported the National Association of Realtors® (NAR). At a seasonally adjusted annual rate of more than 5 million, sales are at their highest rate since October 2013. Inventories rose 2.2% to 2.3 million homes, indicating a 5.5-month supply at the current rate of sales. Lawrence Yun, NAR chief economist, said, “Inventories are at their highest level in over a year and price gains have slowed to much more welcoming levels in many parts of the country. This bodes well for rising home sales in the upcoming months as consumers are provided with more choices.”
  • On the other hand, sales of new single-family homes plummeted by more than 8% in June from May, according to a report issued jointly by the U.S. Census Bureau and the Department of Housing and Urban Development. The seasonally adjusted rate of 406,000 homes was 11.5% lower than the June 2013 estimated figure.
  • The Securities and Exchange Commission (SEC) announced amendments to the rules that govern money market mutual funds. According to a press release issued by the SEC, the amendments are intended to guard against a run on such funds in times of crisis, “while preserving the benefits of the funds.” The rules require a floating net asset value for prime money market funds serving an institutional client base. Prime money market funds serving individual investors will continue to strive for a stable $1 share price, although there can be no guarantees that such a price will be maintained. The new regulations also allow non-governmental money market funds to charge fees or impose other restrictions on investors attempting to withdraw funds during trying times. “This strong reform package will make our markets more resilient and enhance transparency and fairness of these products for America’s investor,” said Mary Jo White, SEC chairperson.
  • In a move that surprised many observers, the Bank of Russia raised its key interest rate for the third time in five months. The central bank lifted the rate by 0.5% to 8% in a move intended to curb inflation, respond to continued geopolitical unrest, and perhaps stymie additional flight of capital resulting from any further economic sanctions.
  • Unemployment insurance weekly claims (i.e., weekly jobless claims), were 284,000 for the week ending July 19. That was a decrease of 19,000 from the previous week and, more notable, the lowest level for initial claims since February 2006.

Eye on the Week Ahead

Next week, market watchers will keep an eye on manufacturing data, home prices, comments from the Fed, and the government’s initial estimates for second-quarter growth figures.

How does divorce affect estate planning?

Published on by dredheadz

Wills for both spouses are often drawn up sometime during the marriage–particularly if there are children involved. When divorce is contemplated, the selection of beneficiaries and executors will likely be revised to reflect the absence of your former spouse. Additionally, you will need to re-examine the gift and estate tax aspects of your estate plan. For these reasons, many divorcing couples revise their estate planning documents during the period of separation or soon after the divorce has been finalized.

What should you be concerned about during the separation period?

If divorce proceedings have begun, it’s important to draft a formal separation agreement as soon as possible, establishing the spouses’ rights regarding property, debts, temporary alimony, child support, and child custody. When drafting the provisions, you (or your attorney) will want to consider the possibility of your spouse dying prior to entry of the final divorce decree. You may wish to make the agreement binding on heirs and assigns so that the obligations will continue if one party dies.

If you expect to receive alimony and child support from your spouse, you may want to require (in the separation agreement) that your spouse buy a life insurance policy (or keep the existing one in force), naming you as the beneficiary. The policy should be in an amount sufficient to cover the sum of support obligations and property distribution payments contemplated. You could even be named as the owner of the policy insuring your spouse’s life.

Similarly, your agreement might require your spouse to maintain minimum will provisions in favor of you (and/or your children). Often, the parties to a separation agreement include a provision that both waive the right to elect a share of the estate of the other in the event that one party dies before the divorce decree is entered.

When revising your estate plan, which areas require particular note?

First of all, you should make the necessary changes in your will or other estate planning documents to ensure that your former spouse isn’t named as your personal representative, successor trustee, beneficiary, or holder of the power of attorney. A new will will likely be drafted during the separation period. Note that in some states, wills drawn up during a marriage are considered void after a divorce unless specifically ratified after the divorce. This means that intestacy rules would apply, instead of the will being controlling.

Next, consider gift tax implications if funding your children’s education is required by your property settlement. Although your direct tuition payments (even for adult children) are exempt from gift tax when required by a property settlement agreement, be aware that your payments for related educational expenses (e.g., books and room and board) may be subject to gift tax.

Example(s): Liz and Frank have a daughter, Carol. Carol has reached the age of majority under state law. When the couple divorced, Frank agreed (as part of the settlement) to pay for Carol’s college tuition, books, room, and board. During the year, Frank pays $20,000 tuition directly to Carol’s university, and he gives Carol $15,000 in cash for living expenses. The tuition isn’t a taxable gift, but the $15,000 in cash will be treated as a taxable gift.

Finally, consider the absence of the unlimited marital deduction. A deduction is allowed for qualifying transfers to one’s spouse during lifetime or at death. Because this gift and estate tax deduction is one of the most important estate planning tools for married couples, your loss of this tool at divorce can affect your tax situation adversely when you die.

What I’m Watching This Week – 21 July 2014

Published on by dredheadz

The Markets

U.S. stocks dropped sharply Thursday in response to the downing of a Malaysia Airlines commercial jet over Ukraine and the Israeli ground invasion of Gaza. However, most indexes bounced back Friday to end another week in positive territory. The exception was the Russell 2000 Index, which continued its decline perhaps aided by Fed Chairman Janet Yellen’s comments earlier in the week indicating that valuations in some small-cap sectors appear “substantially stretched.” Treasury yields dropped last week, while gold ended the week about 2% lower.

Market/Index 2013 Close Prior Week As of 7/18 Weekly Change YTD Change
DJIA 16576.66 16943.81 17100.18 .92% 3.16%
Nasdaq 4176.59 4415.49 4432.15 .38% 6.12%
S&P 500 1848.36 1967.57 1978.22 .54% 7.03%
Russell 2000 1163.64 1159.93 1151.61 -.72% -1.03%
Global Dow 2484.10 2599.40 2622.25 .88% 5.56%
Fed. Funds .25% .25% .25% 0 bps 0 bps
10-year Treasuries 3.04% 2.53% 2.50% -.03 bps -.54 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Headlines

  • Stocks tumbled Thursday in response to two major geopolitical events, the downing of Malaysia Airlines Flight 17 over Ukraine and Israel’s ground invasion of the Gaza Strip. Treasuries yields dropped and gold futures rose as investors sought safer havens.
  • Retail and food sales rose 0.2% in June and were 4.3% higher than a year earlier. However, the Commerce Department does not adjust the numbers for price increases such as those seen in food costs in the last several months; not counting autos, which were down 0.3%, other retail sales were up 0.4% for the month.
  • The Federal Reserve’s “beige book” report said most districts expect a continuation of generally steady growth seen at the end of last year. All districts reported year-over-year gains in manufacturing, and most also said retail sales had increased since the last report.
  • Wholesale prices rose 0.4% in June, putting the wholesale inflation rate for the last 12 months at 1.9%. The Bureau of Labor Statistics said almost all of the monthly increase was the result of a 2.1% jump in energy costs resulting mostly from higher gas prices.
  • Housing starts dropped by 9.3% in June from the previous month, according to a joint release issued by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development. The decrease stemmed from a nearly 30% drop in the South, where unusually wet weather hampered construction efforts. Other regions reported increases, including the Northeast, which was up 14.1%, and the Midwest, which rose 28.1%. Year-over-year, the index is up 7.5%.
  • Manufacturing data was generally positive. The Federal Reserve said U.S. manufacturing output was up for the fifth straight month, while a 0.2% gain in industrial production meant production was up an annualized 5.5% during Q2 2014. Also, the Federal Reserve’s Empire State manufacturing survey rose for the third straight month, hitting its highest level in more than four years (25.6). The Philadelphia Fed Survey reported similar results. The index rose to 23.9 this month, its highest point since March 2011.
  • The Conference Board Leading Economic Index rose 0.3% in June. Ataman Ozyildirim, a Conference Board economist, noted that increases over the last six months indicate an improving economy, which might even accelerate a bit in the second half. “Housing permits, the weakest indicator during this period, reflects some risk to this improving outlook. But favorable financial conditions, generally positive trends in the labor markets and the outlook for new orders in manufacturing have offset the housing market weaknesses over the past six months,” he said.
  • The Justice Department announced that Citigroup had agreed to provide $200 million worth of financing for new affordable rental housing as part of a $7 billion settlement for misrepresenting mortgage-backed securities it packaged and sold leading up to the 2008 financial crisis. The agreement also includes a $4 billion civil penalty that the Department of Justice said represents the largest settlement under a federal law enacted as a result of actions by thrifts and savings and loan institutions in the 1980s.

Eye on the Week Ahead

This week, investors will likely keep a close eye on continuing geopolitical developments, as well as domestic reports on consumer inflation, existing and new home sales, and durable goods.

Retirement Myths and Realities

Published on by dredheadz

We all have some preconceived notions about what retirement will be like. But how do those notions compare with the reality of retirement? Here are four common retirement myths to consider.

1. My retirement won’t last that long

The good news is that we’re living longer lives. The bad news is that this generally translates into a longer period of time that you’ll need your retirement income to last. Life expectancy for individuals who reach age 65 has been steadily increasing. According to the National Center for Health Statistics, life expectancy for older individuals improved mainly in the latter half of the 20th century, due largely to advances in medicine, better access to health care, and healthier lifestyles. Someone reaching age 65 in 1950 could expect to live approximately 14 years longer (until about age 79), while the average 65-year-old American today can expect to live about another 19 years (to age 84) (Source: National Vital Statistics Report, Volume 61, Number 4, May 2013). So when considering how much retirement income you’ll need, it’s not unreasonable to plan for a retirement that will last for 25 years or more.

2. I’ll spend less money after I retire

Consider this–Do you spend more money on days you’re working or on days you’re not working? One of the biggest retirement planning mistakes you can make is to underestimate the amount you’ll spend in retirement. One often hears that you’ll need 70% to 80% of your preretirement income after you retire. However, depending on your lifestyle and individual circumstances, it’s not inconceivable that you may need to replace 100% or more of your preretirement income.

In order to estimate how much you’ll need to accumulate, you need to estimate the expenses you’re likely to incur in retirement. Do you intend to travel? Will your mortgage be paid off? Might you have significant health-care expenses not covered by insurance or Medicare? Try thinking about your current expenses and how they might change between now and the time you retire.

3. Medicare will pay all my medical bills

You may presume that when you reach age 65, Medicare will cover most health-care costs. But Medicare doesn’t cover everything. Examples of services generally not covered by traditional Medicare include most chiropractic, dental, and vision care. And don’t forget the cost of long-term care–Medicare doesn’t pay for custodial (nonskilled) long-term care services, and Medicaid pays only if you and your spouse meet certain income and asset criteria. Without proper planning, health-care costs can sap retirement income in a hurry, leaving you financially strapped.

Plus there’s the cost of the Medicare coverage itself. While Medicare Part A (hospital insurance) is free for most Americans, you’ll pay at least $104.90 each month in 2014 if you choose Medicare Part B (medical insurance), plus an average of $31 per month if you also want Medicare Part D (prescription coverage). In addition, there are co-pays and deductibles to consider–unless you pay an additional premium for a Medigap policy that covers all or some of those out-of-pocket expenses. (As an alternative to traditional Medicare, you can enroll in a Medicare Advantage (Part C) managed care plan; costs and coverages vary.)

4. I’ll use my newfound leisure hours to ______ (fill in the blank)

According to the Bureau of Labor Statistics 2012 American Time Use Survey, retirees age 65 and older spent an average of 8 hours per day in leisure activities. (Leisure activities include sports, reading, watching television, socializing, relaxing and thinking, playing cards, using the computer, and attending arts, entertainment, and cultural events.) This compares to an average of 5.4 hours per day for those age 65 and older who were still working.

So how did retirees use their additional 2.6 hours of leisure time? Well, they spent most of it (1.6 hours) watching television. In fact, according to the survey, retirees actually spent 4.5 of their total 8 leisure hours per day watching TV.

And despite the fact that many workers cite a desire to travel when they retire, retirees actually spent only 18 more minutes, on average, per day than their working counterparts engaged in “other leisure activities,” which includes travel.

401(k) Frequently Asked Questions

Published on by dredheadz

How much money can I put into my 401(k) account?

The maximum pre-tax contribution dollar amount is set by law and adjusted for inflation annually. The 2008 pre-tax contribution limit is $17,500. If you are age 50 or older you may also make an additional catch-up contribution of $6,500 per year. Some plans may offer you the option to contribute on an after-tax basis which is not included in the $17,500 limit. Note that plans may restrict employee contributions to an amount less than $17,500, and may also choose not to permit catch-up contributions.

What is the difference between investing pre-tax and after-tax contributions?

The difference between the two types of contributions is when you are taxed. Pre-tax contributions and earnings are taxed only when you withdraw it. Since the money that would normally be paid in taxes goes directly into the plan, pre-tax contributions can accumulate quickly. However, if you need to withdraw money prior to age 59½ you may incur a 10% withdrawal penalty, in addition to owing current income taxes. After-tax contributions are taxed before they are put into the plan. Although you won’t owe taxes on your contributions when you take a withdrawal, you will be taxed on the earnings and may be subject to an early withdrawal penalty on the interest earned if you do so before age 59½.

What pre-tax percentage should I invest when I am starting out?

Any savings is better than nothing and the sooner you get started, the better!! You should maximize your company’s match. For example, if your company matches 50 cents on the dollar up to 6%, you should contribute at least 6%. Simply defer as much as you can afford to budget and take full advantage of the tax deferral.

Is it legal for my employer to move my 401(k) account balances to similar investment funds and change investment fund managers?

It is legal. It is your company’s responsibility to provide competitively performing funds.

What can I do if I do not like the investment funds that my company offers.

Talk to your human resources representative. Your employer has implemented a retirement savings plan for the employees to utilize and appreciate. It is your employer’s fiduciary responsibility to provide competitively performing funds.

Can I withdraw money from my account while I am still working?

Some plans offer loans allowing you to borrow money from your 401(k) account, but you have to pay yourself back with interest. If you fail to pay back the loan it is treated as a withdrawal and the outstanding loan balance will be subject to current income taxes as well as a 10% early withdraw penalty. If your plan doesn’t offer loans, you may be able to qualify for a severe financial hardship withdrawal if no other resources are available to you. According to the IRS a hardship withdrawal includes the following:

  • down payment of primary residence
  • college tuition for you or your dependents
  • unreimbursed medical expenses
  • prevent eviction or foreclosure from your home

Some companies are more lenient than others. Because of the complexity surrounding this issue and varying plan designs, you need to reference your plan document or ask your Human Resources representative for further information regarding plan withdrawals.

How is my company match determined?

There are several different methods used to determine the amount your company may contribute to the plan. Some of the more common employee matches include:

  • fixed percentage – company contribution 25% up to 6% participant deferral.
  • guaranteed percentage – company contributes a pre-determined percentage of participants’ pay.
  • discretionary percentage – company contributes a percentage of participants’ pay generally based on company profits and subject to change year to year.

Can I stop contributing if I feel I cannot afford to?

Most plans allow you to stop contributing at any time though employers are not required by law to do so. Some plans may require specific percentage contribution for a full plan year so be sure to check your plan rules.

What happens to my 401(k) account balance if I choose to leave or am fired from the company?

Your distribution options are the same whether you voluntarily leave or are terminated. If your account balance is more than $5,000, you can leave your money in the plan. If you want to take your money with you, your vested account balance can be rolled into another 401(k) plan with your employer or put into an IRA to avoid early withdrawal penalties.

How long can my former company hold my account balance from my date of termination?

There is no quick, general answer. There are four factors that affect the timing of your distribution:

  • The plan itself may provide a time frame which should be documented in your plan documentation or summary plan description. In some rare cases, distributions are not made until the participant has reached retirement age, usually defined as age 65, even if the participant terminated employment much earlier.
  • Your distribution cannot be processed until after the next valuation date when the plan determines the account balances of participants. Companies can determine account balances daily, monthly, quarterly, semiannually or even annually.
  • How your money is invested can affect how long it will take for you to get your distribution. While most investments can be liquidated quickly, a few, such as some real estate investments, may take longer.
  • Processing your paperwork after the valuation date can take a few days or a few weeks depending on how your plan is managed.

It is important for you to know that your company wants you to have your money just as soon as you do. The company is responsible for and must pay fees on your account balance for as long as your money remains in the plan.

What information and reports is my employer required to provide me with on my 401(k) plan?

Your employer must provide you with a Summary Plan Description and an annual statement of your account information. You have a legal right to ask the plan administrator for a copy of the plan’s latest Form 5500 or Form 5500-C/R, the summary plan description, the plan document, the trust agreement setting up the plan, if separate from the plan, and any collective bargaining contract, if appropriate, and any other instrument under which the plan was established or is operated. In addition, you will often be provided a prospectus for every fund offered in the plan, but this is not legally required. If your company’s stock is offered in the plan you are required to receive a prospectus on the company stock fund.

How soon does my employer have to deposit my contributions deducted from my pay into my 401(k) account?

Government regulations require that participant contributions to a 401(k) be deposited to the plan on the earliest date that they can be reasonably segregated from the employer’s general assets, but in no event may they be deposited later than the 15th business day of the month following the month in which the participant contributions are deducted from their pay. Please note that your employer can not wait until the 15th business day of the month following the month in which your contribution was deducted just for the convenience of doing so. If they can deposit the funds sooner, they must do so.

I still have a 401(k) account with my former employer. I would like to transfer this account into my IRA. Can this be done? If so, are there any penalties?

Yes, this can be done and is referred to as a trustee to trustee transfer. You need to request the distribution forms from your former employer. Make sure you open your new IRA before the transfer so that you can provide the account information on the required forms. There are no penalties with a trustee to trustee transfer, but if you allow your former employer to send the funds directly to you and not to your new IRA, they will be required to deduct and remit 20% of the total to the IRS.

What are the rules regarding hardship withdrawals from my 401(k)?

Hardship withdrawals are allowed by law but your employer is not required to provide this option in your plan. The cost of administering such a program can be prohibitive for many small companies. Your summary plan description (SPD) will state whether or not your employer allows withdrawals in your plan.The IRS code that governs 401(k) plans provides for hardship withdrawals only if: (1) the withdrawal is due to an immediate and heavy financial need; (2) the withdrawal must be necessary to satisfy that need (i.e. you have no other funds or way to meet the need); (3) the withdrawal must not exceed the amount needed by you; (4) you must have first obtained all distribution or nontaxable loans available under the 401k plan; and (5) you can’t contribute to the 401(k) plan for 6 months following the withdrawal.The following four items are considered by the IRS as acceptable reasons for a hardship withdrawal:

  • Un-reimbrused medical expenses for you, your spouse, or dependents.
  • Purchase of an employee’s principal residence.
  • Payment of college tuition and related educational costs such as room and board for the next 12 months for you, your spouse, dependents, or children who are no longer dependents.
  • Payments necessary to prevent eviction of you from your home, or foreclosure on the mortgage of your principal residence.

Hardship withdrawals are subject to income tax, and if you are not at least 59½ years of age, the 10% withdrawal penalty. You do not have to pay the withdrawal amount back.

What are the general rules regarding loans from a 401(k)?

The rules governing 401(k) plans allow plans to provide loans, but do not mandate that an employer make it a plan feature. Your summary plan description (SPD) will state whether or not your employer allows loans in your plan.Most of the time loans are only allowed for the following reasons: (1) to pay education expenses for yourself, spouse, or child; (2) to prevent eviction from your home; (3) to pay un-reimbursed medical expenses; or (4) to buy a first-time residence. You must pay the loan back within five years, although this can be extended for the first-time home purchase.Usually you are allowed to borrow up to 50% of your vested account balance to a maximum of $50,000 (set by law). Because of the cost, many plans will also set a minimum amount and restrict the number of loans you can have outstanding at any one time. Loan payments will generally be deducted from your payroll checks and, if married, you may need your spouse to consent to the loan. Funds obtained from a loan are not subject to income tax or the 10% early withdrawal penalty. If you should terminate your employment, often any unpaid loan will be distributed to you. This distribution will be subject to income tax and, if you are not at least 59½ years of age, the 10% withdrawal penalty.

I am currently working in the U.S. on a Visa. If I choose to leave the U.S. when my Visa expires, what will happen wiht my 401(k) account?

To avoid early withdrawal penalties and payment of taxes you can do one of two things: (1) If your account balance is over $5,000, you can leave your 401(k) money in your former employer’s plan. (2) You can roll your account balance into an IRA. You can also request a distribution from the 401(k) plan and take the lump-sum payment. You will have to pay taxes and early withdrawal penalties with the lump sum payment.

Disclaimer: I am not engaged in rendering legal advice. I am providing you with general 401(k) information. For plan specific information, you need to refer to your employer’s summary plan description.