Archive for October, 2013:

.gov is getting worried about retirement savings

Written on October 30th, 2013 by Jamesno shouts

In the financial services community we are bombarded with the dismal statistics about how much the average citizen has (or has not) accumulated for retirement.  There has long been efforts to encourage people to not only build a cash savings but to contribute to workplace retirement plans.  Sometimes this is a head scratcher when you also see our government so focused on getting consumer spending up since it is said to power the economy, but that is another topic.

Not to long ago there was the push to automatically enroll employees in 401ks when they joined a company.   But unfortunately the progress has been slow and with many small businesses not offering retirement plans and the large amount of workers in part-time positions the problem doesn’t seem to be getting better.

The newest idea out of the Treasury Department are “retirement bonds”.  While not a done deal it is being discussed heavily as one additional solution to the retirement problems facing this country.  This bond would be issued by the US Gov. , tax deferred like an IRA and eligible to be held in an IRA once you reached a certain value.  These bonds would be available via automatic payroll deduction, similar to the past when employees were allowed to purchase “savings bonds” directly via payroll deduction.

I think most acknowledge that we have an impending issue and maybe this is one small step toward correcting, however it will take quite a bit more to rectify the situation.  Maybe we could learn from the success of programs in other countries.  I recently had the opportunity to speak with some financial planners visiting from Australia and became intrigued with their retirement program.  I’ll try to post a quick summary on that program in the next few weeks.

it’s time for the talk

Written on October 24th, 2013 by Jamesno shouts

I’ll begin this post by saying I have nothing to gain with this discussion, I’m a planner and don’t sell insurance.  With that said I have been around along enough in the industry and working with clients that I have seen the good, bad and ugly when it comes to facing our own mortality and care issues.

This post is for you, whether your age is 40 or 80.  Nobody likes to think about a time when they may need care, let alone their own death.  Guess what, at some point it is guaranteed, and by planning for it and communicating openly you can make life much easier for your family.

If you are in your 40′s or 50′s it is probably time to begin the discussion with Mom or Dad about what happens when they are either mentally or physically unable to care for themselves.  If you are in your 70′s or 80′s , it is time to open up with your family and share some insight into your finances and estate planning.  You need to make it known what your wishes are and make sure your kids understand.  We all like to consider ourselves invincible, especially us guys, I get it.  But it is important that your kids and your spouse can step in if something were to happen.  How many of you are control freaks like me and handle all the finances for the household?  What happens when you are knocked out of the picture and your spouse or kids have to step in?  Will it be total chaos or could they handle everything seamlessly?

I know it is a difficult topic to address, but think of the alternative: don’t have the discussion and get a call one day that your parent has suffered a stroke and will need constant care for the remainder of their life.  Contemplate that scenario for a moment and think about all the questions you would have:

  1. Are Mom/Dad’s finances such that they can cover the cost of home healthcare?
  2. Is Mom or Dad able to care for the other?
  3. Will I have to move Mom/Dad into my home?  Who will care for them while I work?
  4. Do they have a power of attorney that allows me to make medical / financial decisions for them?
  5. If I have a sibling, which one of us takes on this care and how do we equalize the cost?
  6. Does Mom/Dad have long term care insurance to help with the costs?
  7. Are their financial affairs in good order and can I find out easily where their accounts are?
  8. Is there a record of all their possessions, a Personal Inventory-Instructions list for Estate Plan?  What about online passwords to accounts?

So here is my challenge to you:  call a family meeting and begin the process of formulating a plan.  It is much easier to do this when everyone is healthy and not under duress.

One day everyone of us will experience the dreaded call, how will you handle it?


1973 vs. 2013

Written on October 7th, 2013 by Jamesno shouts

A recent Powershares Investment Workshop got me thinking about inflation.  Often times we hear about the massive increase in prices of items and on the surface it sounds like a huge return, until we factor in that most other items have risen at the same rate or more.  Case in point is when you hear that your grandparents purchased a home in the 40′s or 50′s for what seems like a modest  amount of money (for a home) and then sold it for $300k.  So let’s do the math:  $40,000 home in 1950 sold for $300,000 in 2013.  That seems like a huge return on the surface, but over a 63 year time period the increase is simply keeping up with inflation, a return of 3.25% annually!  But more than the return is the concept that everything increases with inflation: the cost of food, a postage stamp, a can of soda and your income!  If your salary is keeping up with inflation then your percentage of income to buy that $40k home back in 1950 is equivalent to your percentage of income to buy the more expensive ($300k) home in 2013.  Make sense?

To grasp this let’s take a look at two graphics from the American Enterprise Institute that detail the amount earned by a college student over his/her summer break and what they spend that money on.  One is from 1973 and the other is 2013:



What you notice is that while things get more expensive, in a perfect world your income would rise to compensate for it.  Inflation is another way of saying the purchasing power of the dollar diminishes over time, so to keep the same lifestyle (as things get more expensive) then your income must rise as well.  It’s when those “things” continue to get more expensive and your income stays stagnant that we encounter purchasing power erosion and really feel the effect of inflation, but that is for another blog.

Filed under Credit & Spending, Personal Finance Tags:

is the debt ceiling issue priced into the market?

Written on October 1st, 2013 by Jamesno shouts

To celebrate the shutdown of the Federal Government, the stock market staged a modest rally today.  Confused?  As you should be.  The market tends to do opposite of which most expect, so if you were expecting the equity markets to plummet with the Federal Government shutdown, think again!  However, before we discount this as just another faux crises that will propel the markets to new highs, there may be more to it.  Today was the first day of the fourth quarter and with that there is quite a bit of rebalancing and portfolio maneuvering by big fund managers and institutions.  Don’t let today’s actions lead you to believe that everything is calm beneath the waters.  Quite the contrary!  The market is not discounting much in the way of a Federal Government shutdown and it is surely not discounting the effect on GDP in Q4 if this persists more than a few days.  With this shutdown many Federal Employees are furloughed, but all essential services are still operational.  That could all change come Oct 17th.  If we don’t have an agreement by then, the debt ceiling is officially reached and cash has run out.  That means that the military may see delay in paychecks and all federal beneficiaries (social security, medicare, etc) may see a disruption of checks.

We are getting close and the market has not voiced its displeasure yet to Washington.  If agreements are not reached very soon then we may get an early Halloween scare on Wall Street.

Filed under General Tags: