Why Did Treasury Yields Jump?

Posted by on Oct 15, 2018 in 401k, 403b, atuos, bank statements, Boomers. Millenials, cars, college planning, Consumer Tools, credit card statements, Deflation, Elder Care, estate planning, family finances, financial advice, financial planning, Fixed Income Investing, Inflation, insurance, Investing, IRA, Medicare Planning, Retire Happy Now, Retirement, retirement, retirement calculator, retirement planning, sales, social security, tax returns, taxes, TSA | 0 comments

A look at the early October selloff of U.S. government bonds.   Provided by Frederick Saide, Ph.D.      Investors raised eyebrows in early October as long-dated Treasury yields soared. On Tuesday, October 2, the yield of the 10-year note was at 3.05%. The next day, it hit 3.15%. A day later, 3.19%. What was behind this quick rise, and this sprint from Treasuries toward riskier assets? You can credit several factors.1   One, Federal Reserve chairman Jerome Powell made an attention-getting comment. On October 3, he expressed that the central bank’s monetary policy is “a long way from neutral.” In other words, interest rates (in his view) are nowhere near the point where the Fed needs to stop increasing them. Bond investors found his remark plenty hawkish.2   Two, great data keeps emerging. The Institute for Supply Management’s service sector purchasing manager index hit an all-time high of 61.6 in September. (It should be noted that this index has only been around for a decade.) ADP’s latest payrolls report found that private companies added 230,000 net new jobs last month, a terrific gain vaulting above the 168,000 noted in August. Additionally, initial unemployment claims were near a 49-year low when October started. These indicators signaled an economy running on all cylinders. Further affirming its health, Amazon.com announced it would boost its minimum wage to $15 an hour, giving some of its workers nearly a 30% raise.3   Three, you have the influence of the Fed thinning its securities portfolio. It has been reducing its bond holdings since last fall and is now doing so by $50 billion per month (compared to $40 billion per month last quarter).2      Four, NAFTA could be replaced. Canada, Mexico, and the U.S. have agreed to a preliminary trilateral trade pact designed to supplant the North American Free Trade Agreement. Wall Street applauded that news as October began, which whetted investor appetite for stocks and lessened it for bonds.4     What is the impact of these soaring yields? When 10-year, 20-year, and 30-year Treasury yields rise abruptly, the takeaway is that investors believe the economy is booming and inflation pressure is increasing. Meaning, more interest rate hikes are ahead.   As long-dated Treasury yields escalate, the housing market could feel the impact. Mortgage rates track the path of the 10-year note, and when the 10-year note yield rises, they move north in response. Higher mortgage rates would further decelerate the pace of home buying, which has been slowing.4   When the yield on the 10-year note reached its highest level in more than seven years on October 4, Wall Street grew a bit worried. The Nasdaq Composite fell 145.57, the Dow Jones Industrial...

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Preparing to Retire Single

Posted by on Oct 7, 2018 in 401k, 403b, bank statements, Boomers. Millenials, Consumer Tools, Elder Care, estate planning, family finances, financial advice, financial planning, Fixed Income Investing, Inflation, insurance, Investing, IRA, Medicaid Planning, Medicaid Recovery, Medicare Planning, Retire Happy Now, Retirement, retirement, retirement calculator, retirement planning, sales, social security, tax returns, taxes, TSA | 0 comments

Unmarrieds need to approach retirement planning pragmatically.   Provided by Frederick Saide, Ph.D.                         In an ideal world, it would be simple to prepare for a solo retirement. You would just save half as much as a couple saves, buy half as much insurance coverage, and expect to live on half the income. Reality dictates otherwise.   Real-world planning for a solo retirement begins with an assumption. You assume, at some point, that you will retire alone. You may be ready to make that assumption at age 40. Or, that distinct probability may emerge at age 55. These midlife assumptions aside, you should acknowledge the possibility that you may end up spending some of your retirement alone, even if you retire with a spouse or partner.   As a solo ager, your retirement becomes a test of self-reliance. As ABC News notes, the Elder Orphan Facebook Group recently polled its 8,500 members about the “safety net” they had and collected 500 responses. Thirty-five percent lacked “friends or family to help them cope with life’s challenges,” and 70% had no specific idea of who their caregiver would be in event of mental or physical decline.1   Think about what you do for your elderly parents or what you have done. Look ahead and consider who or what resource could provide that help to you someday.   Insuring yourself is critical before and after you retire. If you retire before becoming eligible for Medicare, could you lean on COBRA or remain on a group health plan a bit longer before having to find your own health insurance? Disability insurance is also important while you are still working, to protect your income. As Dave Ramsey says, your income is your most powerful wealth building tool. When you lose your income, that tool is broken, and that restricts your retirement savings effort.2   How about long-term care insurance? Opinions are divided, and even affluent single retirees may find it hard to afford. Look into it, but also look at other possible methods for coming up with the money you may need for your eldercare. As for assistance with daily living, some creative seniors who age alone take in a younger relative, friend, or roommate who lives with them rent free in exchange for helping them with daily tasks.   It is also crucial for a solo ager to assign powers of attorney. Through a durable power of attorney for health care and a living will, you can respectively identify who will make medical decisions for you if you become incapacitated and the degree of care you want (or do not want) if that occurs. (Some states fuse both documents into one, called...

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The IRA and the 401(k)

Posted by on Sep 30, 2018 in 401k, estate planning, family finances, financial advice, financial planning, Fixed Income Investing, Inflation, insurance, Investing, IRA, Retire Happy Now, Retirement, retirement, retirement calculator, retirement planning, social security, tax returns, taxes | 0 comments

  Comparing their features, merits, and demerits.   Provided by Frederick Saide, Ph.D.   How do you save for retirement? Two options probably come to mind right away: the IRA and the 401(k). Both offer you relatively easy ways to build a retirement fund. Here is a look at the features, merits, and demerits of each account, starting with what they have in common.   Taxes are deferred on money held within IRAs and 401(k)s. That opens the door for tax-free compounding of those invested dollars – a major plus for any retirement saver.1   IRAs and 401(k)s also offer you another big tax break. It varies depending on whether the account is traditional or Roth in nature. When you have a traditional IRA or 401(k), your account contributions are tax deductible, but when you eventually withdraw the money for retirement, it will be taxed as regular income. When you have a Roth IRA or 401(k), your account contributions are not tax deductible, but if you follow Internal Revenue Service rules, your withdrawals from the account in retirement are tax free.1   Generally, the I.R.S. penalizes withdrawals from these accounts before age 59½. Distributions from traditional IRAs and 401(k)s prior to that age usually trigger a 10% federal tax penalty, on top of income tax on the withdrawn amount. Roth IRAs and Roth 401(k)s allow you to withdraw a sum equivalent to your account contributions at any time without taxes or penalties, but early distributions of the account earnings are taxable and may also be hit with the 10% early withdrawal penalty.1    You must make annual withdrawals from 401(k)s and traditional IRAs after age 70½. Annual withdrawals from a Roth IRA are not required during the owner’s lifetime, only after his or her death. Even Roth 401(k)s require annual withdrawals after age 70½.2   Now, on to the major differences:    Annual contribution limits for IRAs and 401(k)s differ greatly. You may direct up to $18,500 into a 401(k) in 2018; $24,500, if you are 50 or older. In contrast, the maximum 2018 IRA contribution is $5,500; $6,500, if you are 50 or older.1   Your employer may provide you with matching 401(k) contributions. This is free money coming your way. The match is usually partial, but certainly nothing to disregard – it might be a portion of the dollars you contribute up to 6% of your annual salary, for example. Do these employer contributions count toward your personal yearly 401(k) contribution limit? No, they do not. Contribute enough to get the match if your company offers you one.1   An IRA permits a wide variety of investments, in contrast to a 401(k). The typical 401(k) offers only...

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Debunking a Few Popular Retirement Myths

Posted by on Sep 23, 2018 in 401k, 403b, Boomers. Millenials, Consumer Tools, Deflation, Elder Care, estate planning, family finances, financial advice, financial planning, Fixed Income Investing, Inflation, insurance, Investing, IRA, Medicaid Planning, Medicare Planning, Retire Happy Now, Retirement, retirement, retirement calculator, retirement planning, social security, taxes, TSA | 0 comments

It seems high time to dispel some of these misconceptions.  Provided by Frederick Saide, Ph.D.   Generalizations about money and retirement linger. Some have been around for decades, and some new clichés have recently joined their ranks. Let’s examine a few.   “When I’m retired, I won’t really have to invest anymore.” Society still sees retirement as an end instead of a beginning – a finish line for a career. In reality, retirement is the start of a new and promising phase of life that could last a few decades. If you don’t keep one or two feet in the investment markets (most notably the equities markets), you risk quickly losing purchasing power as even moderate inflation will devalue the dollars you’ve saved. Keep saving, keep earning, and keep investing.     “My taxes will be lower when I retire.” Not necessarily. You may earn less, and that could put you in a lower tax bracket. On the other hand, you may end up waving goodbye to some of the tax breaks you enjoyed while working, and state and local taxes will almost certainly rise with time. In addition, you could pay taxes on money withdrawn from IRAs and other qualified retirement plans, perhaps even a portion of your Social Security benefits. While your earned income may decrease, you may end up losing a comparatively larger percentage of it to taxes after you retire.1    “I started saving too late; I have no hope of retiring – I’ll have to work until I’m 85.” If your nest egg is less than six figures, working longer may be the best thing you can do. You will have X fewer years of retirement to plan for, which means you can keep earning a salary, and your savings can compound longer. Don’t lose hope: remember that you can make larger, catch-up contributions to IRAs after 50, and remember that you can really sock away some savings in workplace retirement plans. If you are 50 or older this year, you can put as much as $24,500 into a 401(k) plan. Some participants in 403(b) or 457(b) plans are also allowed that privilege. You can downsize and reduce debts and expenses to effectively give you more retirement money. You can also stay invested (see above).2   “Medicare will take care of me when I’m really old.” Not true. Medicare may (this is not guaranteed) pay for up to 100 days of long-term care expenses you incur. If you need months or years of long-term care, you will pay for it out of pocket if you lack long-term care insurance. According to Genworth Financial’s Cost of Care Survey, the average yearly cost of a semi-private room...

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Is Now the Right Time to Go Roth?

Posted by on Sep 9, 2018 in 401k, 403b, Boomers. Millenials, Consumer Tools, Deflation, Elder Care, estate planning, family finances, financial advice, financial planning, Fixed Income Investing, Inflation, insurance, Investing, IRA, IRS, Retire Happy Now, Retirement, retirement, retirement calculator, retirement planning, social security, tax returns | 0 comments

  Some say yes, pointing to the recent federal tax reforms.   Provided by Frederick Saide, Ph.D.   Will federal income tax rates ever be lower than they are right now? Given the outlook for Social Security and Medicare, it is hard to imagine them falling much further. Higher federal income taxes could very well be on the horizon, as the tax cuts set by the 2017 reforms are scheduled to sunset when 2025 ends.   Not only that, the federal government is now using a different yardstick, the chained Consumer Price Index, to measure cost-of-living adjustments in the federal tax code. As an effect of this, you could gradually find yourself in a higher tax bracket over time even if tax rates remain where they are, and today’s tax breaks could eventually be worth less.1     So, this may be an ideal time to convert a traditional IRA to a Roth. A Roth IRA conversion is a taxable event, and so if you have a traditional IRA, you may be thinking twice about it. If the IRA is large, the taxable income linked to the conversion will be sizable, and you could end up in a higher tax bracket in the year the conversion occurs. That literally may be a small price to pay.2   What would you rather have – years of tax-free IRA withdrawals, or years of IRA withdrawals that might be taxed more than they would be today? If you decide against going Roth, you leave a door open to that second possibility. If you go Roth, you open the door to the first.   The jump in your taxable income for the year of the conversion may be a headache – but like many headaches, it promises to be short-lived. Consider the many perks that could come from transforming a traditional IRA balance into a Roth IRA balance (and remember that any taxpayer can make a Roth conversion, even a taxpayer whose high income rules out the chance of creating a Roth IRA).3   Generally, you can take tax-free withdrawals from a Roth IRA once the Roth IRA has been in existence for five years and you are age 59½ or older. If you end up retiring well before 65 (and that could happen), tax-free and penalty-free Roth IRA income could be very nice.3   You can also contribute to a Roth IRA all your life, provided you earn income and your income level is not so high as to bar these inflows. In contrast, a traditional IRA does not permit contributions after age 70½ and requires annual withdrawals once you reach that age.2   Lastly, a Roth IRA is convenient in terms...

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5 Retirement Concerns Too Often Overlooked

Posted by on Sep 3, 2018 in 401k, 403b, Boomers. Millenials, college planning, Consumer Tools, credit card statements, Deflation, Elder Care, estate planning, family finances, financial advice, financial planning, Fixed Income Investing, Inflation, insurance, Investing, IRA, IRS, Medicaid Planning, Medicaid Recovery, Medicare Planning, Retire Happy Now, Retirement, retirement, retirement calculator, retirement planning, social security, tax returns, taxes, TSA | 0 comments

Baby boomers entering their “second acts” should think about these matters.   Provided by Frederick Saide, Ph.D.   Retirement is undeniably a major life and financial transition. Even so, baby boomers can run the risk of growing nonchalant about some of the financial challenges that retirement poses, for not all are immediately obvious. In looking forward to their “second acts,” boomers may overlook a few matters that a thorough retirement strategy needs to address. RMDs. The Internal Revenue Service directs seniors to withdraw money from qualified retirement accounts after age 70½. This class of accounts includes traditional IRAs and employer-sponsored retirement plans. These drawdowns are officially termed Required Minimum Distributions (RMDs).1 Taxes. Speaking of RMDs, the income from an RMD is fully taxable and cannot be rolled over into a Roth IRA. The income is certainly a plus, but it may also send a retiree into a higher income tax bracket for the year.1  Retirement does not necessarily imply reduced taxes. While people may earn less in retirement than they once did, many forms of income are taxable: RMDs; investment income and dividends; most pensions; even a portion of Social Security income depending on a taxpayer’s total income and filing status. Of course, once a mortgage is paid off, a retiree loses the chance to take the significant mortgage interest deduction.2 Health care costs. Those who retire in reasonably good health may not be inclined to think about health care crises, but they could occur sooner rather than later – and they could be costly. As Forbes notes, five esteemed economists recently published a white paper called The Lifetime Medical Spending of Retirees; their analysis found that between age 70 and death, the average American senior pays $122,000 for medical care, much of it from personal savings. Five percent of this demographic contends with out-of-pocket medical bills exceeding $300,000. Medicines? The “donut hole” in Medicare still exists, and annually, there are retirees who pay thousands of dollars of their own money for needed drugs.3,4 Eldercare needs. Those who live longer or face health complications will probably need some long-term care. According to a study from the Department of Health and Human Services, the average American who turned 65 in 2015 could end up paying $138,000 in total long-term care costs. Long-term care insurance is expensive, though, and can be difficult to obtain.5 One other end-of-life expense many retirees overlook: funeral and burial costs. Pre-planning to address this expense may help surviving spouses and children. Rising consumer prices. Since 1968, consumer inflation has averaged around 4% a year. Does that sound bearable? At a glance, maybe it does. Over time, however, 4% inflation can really do some damage to purchasing...

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