Financial Considerations for 2014

Financial Considerations for 2014

What changes should we consider making for next year?

Provided by Jared Daniel of Wealth Guardian Group

                       

2014 is really not too far away. Fall is the time of year when the financially savvy start to look for ways to reduce their taxes and make year-end moves in pursuit of key financial objectives.

 

What might the big picture hold? Absent a crystal ball, let’s turn to the September edition of the Wall Street Journal’s Economic Forecasting Survey. The WSJ asks 52 economists for their take on things each month, and here is how they see 2014 shaping up for America: GDP of 2.8%, a jobless rate declining from the present 7.3% to 6.6% by the end of next year and consumer inflation of 2.5% or less through the end of 2015. These analysts also see the Federal Reserve keeping the benchmark interest rate at 0-0.25% for all of 2014. As for the yield on the 10-year note, their consensus projection has it hitting 3.28% in June 2014 and 3.57% in December 2014. They also see home prices rising 5.22% YOY in 2014 after a 7.85% gain across 2013. Oil, they think, will average $102.73 a barrel on the NYMEX this December, declining to $98.17 a barrel next December. For its part, the International Monetary Fund projects 3.8% inflation-adjusted global growth next year, and a 4.3% tumble for global non-fuel commodities in U.S. dollar terms. These are all macro forecasts worth keeping in mind.^1,2

   

Now, how about your picture? Beyond these macro forecasts that may affect your business and personal finances, what moves might you consider?

 

Can you max out your IRA or workplace retirement plan contribution? If you have, congratulations (especially if you benefit further from an employer match). If you haven’t, you still have the chance to put up to $5,500 into a traditional or Roth IRA for tax year 2013, $6,500 if you are 50 or older this year, assuming your income levels allow you to do so. (Or you can spread that maximum contribution across more than one IRA.) Traditional IRA contributions are tax-deductible to varying degree. The contribution limit for participants in 401(k), 403(b) and most 457 plans and the Thrift Savings Plan is $17,500 for 2013, with a $5,500 catch-up contribution allowed for those 50 and older.^3,4

 

Incidentally, the FY 2014 federal budget set out by the White House proposes some changes to IRAs & 401(k)-style plans in 2014. First, if an individual’s total tax-deferred retirement savings through these plans is great enough to produce yearly retirement income of $205,000 for the individual and his/her surviving spouse, then further contributions to such accounts would be nixed. (Today, it would take savings of nearly $3.5 million to produce such a retirement income stream.) Second, the Stretch IRA strategy would basically vanish: the FY 2014 budget proposes that all IRA inheritors follow the 5-year rule, in which an inherited IRA balance is reduced to zero by the end of the fifth year after the year in which the original IRA owner dies. (Disabled IRA inheritors and certain other beneficiaries would be exempt from the 5-year rule.)⁵

 

Should you go Roth in 2014? The younger you are, the more sense a Roth IRA conversion may make. If you have a long time horizon to let your IRA grow, have the funds to pay the tax on the conversion, and want your heirs to inherit tax-free distributions from your IRA, it may be worth it. If you think you will pay less tax in the future or you might die with a large charitable bequest, then it may not be a wise move.

 

Can you harvest portfolio losses before 2014? This is the time of year to think about tax loss harvesting – dumping the losers in your portfolio. You can claim losses equivalent to any capital gains recognized in a tax year, and you can claim up to $3,000 in additional losses beyond that, which can offset dividend, interest and wage income. If your losses exceed that limit, they can be carried over into future years. It is a good idea to do this before December, as that will give you the necessary 30 days to repurchase any shares should you wish.⁶  

 

In terms of taxes, should you delay a big financial move until 2014? Talk with a tax professional about the impact that selling or buying a home or business might have on your 2013 taxes. You may want to wait. Receiving a bonus, getting married or divorced, exercising a stock option, taking a lump-sum payout – these events have potentially major tax consequences as well. Business owners may want to consider whether to make a capital purchase or not.

 

Look at tax efficiency in your portfolio. Investors were strongly cautioned to do this at the end of 2012 as the fiscal cliff loomed; it is a good idea before any year ebbs into the next. You may want to put income-producing investments inside an IRA, for example, and direct investments with lesser tax implications into brokerage accounts. 

 

Finally, do you need to change your withholding status? If major change has come to your personal or financial life, it might be time. If you have married or divorced, if a family member has passed away, if you are self-employed now or have landed a much higher-salaried job, or if you either pay a lot of tax or get unusually large IRS or state refunds, you will want to review this with your tax preparer.

 

Jared Daniel may be reached at www.wgmoney.com or jared.daniel@wealthguardiangroup.com.

   

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

    

Citations.

1 - online.wsj.com/public/resources/documents/info-flash08.html?project=EFORECAST07 [9/12/13]

2 - forbes.com/sites/billconerly/2013/09/02/economic-assumptions-for-your-2014-business-plan/ [9/2/13]

3 - irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics-IRA-Contribution-Limits/ [9/12/13]

4 - shrm.org/hrdisciplines/benefits/articles/pages/2013-irs-401k-contribution-limits.aspx [10/19/12]

5 - blogs.marketwatch.com/encore/2013/09/09/budget-talks-could-alter-401k-ira-rules/ [9/9/13]

6 - dailyfinance.com/2013/09/09/tax-loss-selling-dont-wait-december-dump-losers/ [9/9/13]

Should You Retire Now, Or Later?

Should You Retire Now, Or Later?

Financially, there are reasons why you may want to work a bit longer.  

Provided by Jared Daniel of Wealth Guardian Group

                       

The case for working past 65. Increasingly, baby boomers are urged to work until full retirement age or beyond. (Social Security defines “full” retirement age as 66 for those born from 1943-1954; it incrementally rises to 67 for those born in 1960 or later). If your health and workplace allow this, it may be a good idea for a few notable reasons.¹

 

Your Social Security payments will be larger. Researchers from UCLA and Duke University jointly conducted a study and found that about 80% of Americans sign up for Social Security before full retirement age. In fact, 50% of Americans claim their federal retirement benefits either at age 62 or within two months of losing or quitting a job they hold at age 62 or older. The rush to get Social Security comes with a distinct penalty, though.²

 

As an example, take a hypothetical pre-retiree named Sharon. Born in 1952, Sharon wants to retire next year at age 62. If she leaves work and claims Social Security benefits in 2014, she will end up getting 25% less in monthly benefits than if she had waited until her full retirement age of 66.³

  

You have a chance to save more. Most people need to save more for retirement. Why not give yourself more years to amass extra funds for the next stage of life? They may even prove to be your peak earning years. If you have considerable retirement savings, think about the boost your nest egg could get from just two or three more years of growth and compounding.

 

Additionally, the longer you work, the shorter your retirement becomes. If you work two or three years longer, that is two or three years less of retirement that you have to fund.  

  

You can pay down debts. Do you have a dream of retiring debt-free? Why not give yourself a better chance to realize it? Too many people are approaching retirement with significant debt – not just mortgage debt, but also business and education loans, auto loans and high credit card balances. This is becoming a major headache for baby boomers.

 

In a recent Securian Financial Group survey, 67% of those polled anticipated retiring with an outstanding mortgage. Credit card debt may seem easy to manage, but consider that most cards charge interest rates of 15% or more. In retirement, will your investments give you that kind of return? Retiring with your house paid off also puts you in position for a reverse mortgage should you need another income stream.^2,4

 

You can keep your health insurance. If your employer sponsors a health plan, leaving work at age 62 is a definite risk when you aren’t eligible for Medicare until age 65. Unless you want to shop for your own health insurance or live without coverage for up to three years, it makes sense to stay on the job.⁴

 

You have a chance to delay RMDs from your workplace retirement plan. Owners of traditional IRAs, SIMPLE IRAs and SEP-IRAs must take Required Minimum Distributions from those accounts after turning 70½. It doesn’t matter whether you are working or retired; you must do it. That isn’t the case with qualified retirement plans such as 401(k)s, 403(b)s and 457(b)s. With some exceptions, you can wait until the year in which you retire to take your first RMD from those accounts. So each year you work past 70 potentially represents another year in which you don’t have to take an RMD from a qualified retirement plan and see your income taxes jump as a result. No RMD also means a bigger account balance that may benefit from another year of compounding and investment returns.^4,5

 

You may even be happier. Working provides a sense of purpose and accomplishment. If you don’t have a new passion or objective in mind when you end your career, you may start to feel a bit adrift.

 

A 2012 report from the American Psychological Association’s Center for Organizational Excellence found that workers older than 55 enjoy their jobs more than any other age group. Asked why they stayed at their particular job, 80% of the employees polled who were older than 55 said job enjoyment was the main reason, with 76% noting “work-life fit” as the leading justification. In contrast, only 58% of employees aged 18-34 cited job enjoyment as a motivation to stay with their current employer, and just 61% felt their jobs fit well with the other aspects of their lives.⁶

 

So if you like what you do, you may want to keep at it a little longer. The financial and emotional benefits could be considerable.

 

Jared Daniel may be reached at www.wgmoney.com or jared.daniel@wealthguardiangroup.com.

    

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

    

Citations.

1 - ssa.gov/retire2/retirechart.htm [9/19/13]

2 - dailyfinance.com/2013/09/10/reasons-70-new-62-retirement-social-security-debt/ [9/10/13]

3 - ssa.gov/retirement/1943.html [9/19/13]

4 - marketwatch.com/story/5-reasons-you-shouldnt-retire-2013-09-17 [9/17/13]

5 - irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics---Required-Minimum-Distributions-%28RMDs%29 [9/4/13]

6 - apaexcellence.org/resources/goodcompany/newsletter/article/391 [9/5/12]

When Technology Interrupts Trading

When Technology Interrupts Trading

Glitches, “flash crashes” & other disturbances are becoming too numerous.

Provided by Jared Daniel of Wealth Guardian Group

                       

“Why is this happening?” Those words were undoubtedly spoken on Wall Street Thursday. Perhaps you uttered them, too. At 12:14pm EST, a glitch halted all trading on the NASDAQ for more than three hours. During that time, the New York Stock Exchange suspended trading in all NASDAQ securities and scratched orders; NASDAQ decided not to cancel any open orders on book.^1,2

 

Reaction to the interruption was hot and swift. An exasperated Dennis Gartman (publisher of The Gartman Letter) called the snafu “an embarrassment to the entire financial community” and likened it to the customer service nightmares associated with multi-hour flight delays. “I’d rather have a slower trade execution with data integrity than this kind of repeated nonsense,” LandColt Capital LP managing partner Todd M. Schoenberger told FOX Business.^1,3

 

All in all, the Street coped pretty well with Thursday’s outage, another side effect of high-speed, computer-driven trading. The NASDAQ wrapped up the market day 39 points higher and the Dow and S&P 500 respectively gained 66 and 14 points. Still, the “flash freeze” marked another headache for institutional and retail investors.^1,4 

   

Lately, those headaches have been more numerous. We can’t forget the “flash crash” of May 2010, which contributed to a 348-point single-day loss for the DJIA.  Last year brought the botched Facebook and BATS IPOs (with shares severely hurt as a consequence) and the software debacle that ruined the reputation of Knight Capital, a risk manager that once handled orders from E-Trade and TD Ameritrade. It was taken over by another firm this year after flirting with bankruptcy. Just this spring, the Chicago Board Options Exchange lost a morning of activity due to a software issue.²

 

The NASDAQ has been affected by some particularly weird hiccups. Remember the stray squirrel incidents of 1987 and 1994? In each case, a small rodent in suburban Connecticut triggered a power outage that disrupted a mighty New York stock exchange.⁵

 

This time, it appears the NASDAQ’s legacy trading system was at fault. What does “legacy” signify? Well, just like the NYSE, the NASDAQ uses trading system software that is built on older versions of said software. So it must be smoothly compatible with those older versions of the in-house application(s) and interface predictably with software used by other exchanges and trading platforms. Each upgrade to legacy software has the potential for a new wave of glitches. Shortly after noon on August 22, NASDAQ’s Security Information Processor, or SIP, network went on the fritz – and that is the network that dispenses quotes and trades. With its SIP out of commission, NASDAQ had no way to distribute pricing to retail traders (and everyone else).⁶

    

None of these recent interruptions have matched Black Monday – October 19, 1987, when runaway computerized trading helped the Dow drop nearly 22% in one trading day – but they have market observers pleading for improved trading technologies.⁷

 

So how quickly can we put these problems in the past? Don’t hold your breath. The SEC has called for uniform technology standards for all U.S. financial exchanges via its Reg SCI proposal, but that hasn’t gotten much traction. There are 13 different exchanges out there now, and as the downturn hit Wall Street with layoffs, exchanges and brokerages have comparatively fewer IT pros servicing them than they once did.⁶

 

Decades ago, movies, TV shows and sci-fi novels repeatedly cautioned us that no matter how wonderful computers were, they would never, ever, ever be able to replace humanity. You could argue that this was the messaging of a more innocent time, but the claim sounds as relevant as ever today, when Wall Street endures moments of paralysis as mind-blowingly sophisticated technologies rebel. Is there any way to preserve a human touch?      

 

As Doreen Mogavero, CEO of Mogavero, Lee & Co. commented to FOX Business, “The New York Stock Exchange has the right model. Human beings and technology. The NYSE management has refused to give up the human element on the floor for just this reason ... regulators have to begin to realize that the pendulum has swung too far in the direction of machines and they need to reevaluate the way they think of the market. They should follow the model that the NYSE has created.”³

 

Patience is a virtue, and during these instances on Wall Street, patience is certainly required. As Georgetown University finance professor James Angel told the Associated Press Thursday, “I think people are [used] to the fact that every once in a while the power goes out and a computer crashes. As long as the trading is fair and orderly, I don't think that's going to deter people from investing.”²

   

Jared Daniel may be reached at www.wgmoney.com or jared.daniel@wealthguardiangroup.com.

   

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

     

Citations.

1 - tinyurl.com/l9ddwjt [8/22/13]

2 - sltrib.com/sltrib/money/56769516-79/nasdaq-trading-technical-due.html.csp [8/22/13]

3 - foxbusiness.com/investing/2013/08/22/traders-react-to-nasdaq-flash-freeze/ [8/22/13]

4 - cnbc.com [8/22/13]

5 - blogs.wsj.com/moneybeat/2013/08/22/once-upon-a-time-it-was-a-squirrel-that-broke-nasdaq/ [8/22/13]

6 - tinyurl.com/keqg5pu [8/22/13]

7 - investopedia.com/terms/b/blackmonday.asp [8/22/13]

The 2 Biggest Retirement Misconceptions

THE 2 Biggest retirement misconceptions

While the idea of retirement has changed, certain financial assumptions haven’t.

Provided by Jared Daniel of Wealth Guardian Group

We’ve all heard about the “new retirement”, the mix of work and play that many of us assume we will have in our lives one day. We do not expect “retirement” to be all leisure. While this is becoming a cultural assumption among baby boomers, it is interesting to see that certain financial assumptions haven’t really changed with the times.

In particular, there are two financial misconceptions that baby boomers can fall prey to – assumptions that could prove financially harmful for their future.

#1) Assuming retirement will last 10-15 years. Previous generations of Americans planned for retirements anticipated to last only 10-15 years. Today, both men and women who reach 65 can anticipate around 20 additional years of life. It’s important to note that this is just an average; a quarter of people reaching 65 will live beyond 90 and ten percent will live another five years or more.¹

However, some of us may live much longer. The population of centenarians in the U.S. is growing – the Census Bureau counted 53,364 folks 100 years or older in 2010 and showed a steady 5.8 percent rise in centenarians since the previous count in 2000. It also notes that between 1980 and 2010 centenarians experienced a population boom, with a 65.8% rise in population, in comparison to 36.3% overall.²

If you’re reading this article, chances are you might be wealthy or at least “affluent.” And if you are, you likely have good health insurance and access to excellent health care. You may be poised to live longer because of these two factors. Given the landmark health care reforms of the Obama administration, we could see another boost in overall American longevity in the generation ahead.

Here’s the bottom line: every year, the possibility is increasing that your retirement could last 20 or 30 years … or longer. So assuming you’ll only need 10 or 15 years worth of retirement money could be a big mistake.

Many people don’t realize how much retirement money they may need. There is a relationship between Misconception #1 and Misconception #2 …

#2) Assuming too little risk. Our appetite for risk declines as we get older, and rightfully so. Yet there may be a danger in becoming too risk-averse.

Holding onto your retirement money is certainly important; so is your retirement income and quality of life. There are three financial issues that can affect your quality of life and/or income over time: taxes, health care costs and inflation. Over time, even 3-4% inflation gradually saps your purchasing power. Your dollar buys less and less.

Here’s a hypothetical challenge for you: for the rest of this year, you have to live on the income you earned in 1999. Could you manage that?

This is an extreme example, but that’s what can happen if your income doesn’t keep up with inflation – essentially, you end up living on yesterday’s money.

Taxes may be higher in the years ahead. So tax reduction and tax-advantaged investing have taken on even more importance whether you are 20, 40 or 60. Health care costs are climbing – we need to be prepared financially for the cost of acute, chronic and long-term care.

As you retire, you may assume that an extremely conservative approach to investing is mandatory. But given how long we may live - and how long retirement may last - growth investing is extremely important.

No one wants the “Rip Van Winkle” experience in retirement. No one should “wake up” 20 years from now only to find that the comfort of yesterday is gone. Retirees who retreat from growth investing may risk having this experience.

How are you envisioning retirement right now? Has your vision of retirement changed? Is retiring becoming more and more of a priority? Are you retired and looking to improve your finances? Regardless of where you’re at, it is vital to avoid the common misconceptions and proceed with clarity.

Jared Daniel may be reached at www.wgmoney.com or jared.daniel@wealthguardiangroup.com.

 

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

   

Citations.

1 - www.socialsecurity.gov/planners/lifeexpectancy.htm [8/23/13]

2 -  www.census.gov/prod/cen2010/reports/c2010sr-03.pdf [12/12]

Creating a Budget for Retirement

Creating a Budget for Retirement

It only makes sense – yet many retirees live without one.

Presented by Jared Daniel of Wealth Guardian Group

The importance of budgeting. You won’t be able to withdraw an unlimited amount of money in retirement, so a retirement budget is a necessity. Some retirees forego one, only to regret it later.

Run the numbers before you retire. Years before you leave work, sit down for an hour or so and take a look at your probable monthly expenses. Perhaps you decide that you’ll need about 75-80% of your end salary in retirement. Perhaps closer to 65-70%. There’s no “right” answer for everyone. Online calculators may help you get at least a basic understanding initially, but remember – a qualified financial professional is likely going to be able to take more into account for you than a simple calculator could.

You first want to look for changing expenses: housing costs that might decrease or increase, health care costs, certain taxes, travel expenses and so on. Next, look at your probable income sources: Social Security (the longer you wait, the more income you may potentially receive), your assorted IRAs and 401(k)s, your portfolio, possibly a reverse mortgage or even a pension or buyout package.

While selling your home might leave you with more money for retirement, there are less dramatic ways to increase your retirement funds. You could realize a little more money through tax savings and tax-efficient withdrawals from retirement savings accounts, by reducing your investment fees, or by having your phone, internet and TV services bundled from one provider.

Budget-wreckers to avoid. There are a few factors that can cause you to stray from a retirement budget. You can’t do much about some of them (sudden health crises, for example), but you can try to mitigate others.

* Supporting your kids, grandkids or relatives with gifts or loans.

* Withdrawing more than your portfolio can easily return.

 * Dragging big debts into retirement that will nibble at your savings.

                           

Budget well & live wisely. A carefully thought-out budget – and the discipline to stick with it – may make big difference in the long run.

Jared Daniel may be reached at www.wgmoney.com or jared.daniel@wealthguardiangroup.com.

 

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.