Retirement Planning Differs For Unmarried Couples

You have devoted your life to working hard, providing for the loved ones around you, and saving for your retirement years.  Now as you approach your golden years, you have raised your family, you have built an estate that you are proud of, and you are deeply committed to your relationship with your significant other.  You both are a happily unmarried couple, and you know that you want to spend the rest of your life with this person. With this said, is your retirement plan specifically tailored to your unmarried relationship with this individual?

Unmarried couples must realize that their retirement planning is a completely different animal compared that of married couples.  As an unmarried couple, don’t let your retirement years discriminate against your wishes for you and your significant other.  It’s important to plan  your retirement together now with a financial advisor/ financial planner to uphold your security in the long run.  Therefore, if you are in an unmarried long-term relationship, please consider the following elements when planning for these golden years with your partner:

Living Arrangements

When an unmarried couple initially moves in together, one of the partners may sell or rent his/her home.   That partner might move into the other partner’s residence, or the couple might decide to buy an entirely new house together.  Whatever the scenario might be, the couple might distribute living expenses depending on which partner qualifies for tax deductions.

 

Furthermore, if the couple did indeed buy a new home together, an expert might suggest that the couple purchases life insurance policies on each other to help pay off the mortgage in the unfortunate event that the other partner suddenly dies.  Considerations must also be made about whose name will be on the bills and the how expenses will be shared.  Also, additional considerations must be made regarding estate documents.   For example, if a partner dies, will the surviving partner continue to live in that home until his/her own death, or will the deceased partner’s family members immediately inherit the home?

 

Joint and Individual Accounts

Many unmarried couples prefer to keep both individual accounts and a joint account.  In regards to individual accounts, the couple can separate the assets/debts that each partner individually accumulated and incurred before “couplehood”.  Many couples also open up a joint account primarily funded by both partner’s monthly social security benefits.  This joint account can then be used to pay for expenses together, such as housing expenses, restaurants, vacations, etc.

 

IRA, Pension, and Retirement Assets

Unfortunately, the spousal advantages of retirement accounts and benefits can be nonexistent for an unmarried couple.  These spousal advantages include advantages, such as the spousal rollover IRA option and the spousal pension continuation benefit election.   An unmarried couple must also annually review beneficiary designations (such as IRAs, annuities, and life insurance) in order to uphold each partner’s exact wishes.  Because of the contractual nature, beneficiary designations will always supersede heirs in other estate documents.

 

Separate Tax Returns

Complex consideration must be taken when an unmarried couple files separate tax returns.  The couple has to determine which partner gets to deduct which expense.  Because each partner’s individual contributions can vary, deductions vary as well.  Thus, it’s best for an unmarried couple to seek the services of an accountant especially for tax returns.

 

Estate Planning

As an unmarried couple planning for your enjoyable retirement together, no partner wants to contemplate the possibility of an unexpected sickness, an accident, and even death; however, both partners must be strong and plan for the unexpected as well as the very end.   For this reason, a will, power of attorney, living will, and healthcare directive is essential to have. For instance, an unmarried couple must carefully consider who will make final medical decisions if one partner in the relationship is unexpectedly gravely ill and on life support. Will the other partner or the children of the sick partner ultimately determine when to “pull the plug”?

 

As for estates, many unmarried couples choose to keep estates separate.  Especially in these cases, financial advisors/ financial planners are needed to set up trust agreements, wills, and other estate documents.

The End Game

Compared to married couples, unmarried couples have a multitude of additional considerations to make when planning for their retirement together.  The complexity of an unmarried couple’s retirement plan increases especially with the presence of ex-spouses, children, grandchildren, separate estates, etc.  You and your significant other must navigate through this retirement planning process with the help of a trusted financial advisor/financial planner.  Especially if you are an unmarried couple over the age of 60, you must request the financial, legal, and tax advice of experts in order to protect  your happy retirement, your estate, and your wishes as a couple.  So, don’t navigate these waters alone; seek the help of an expert today.

 

Merkel, Steve. “Relationships And Retirement Planning.” Investors Business Daily. 2 November 2012. <http://news.investors.com/investing-personal-finance/110212-631985-relationships-and-retirement-planning.htm>

Image courtesy of: http://www.zuuply.com/article/649/what+is+the+best+retirement+plan+for+you.html

 

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Maximize Your Social Security Benefits

You have worked hard all of your life.  You have raised a beautiful family that you are proud of, and you and your spouse are finally ready to enjoy your golden years together.  And yes, you have also planned and saved for these future retirement years.   Maybe you planned many years ago or maybe you planned just recently; but either way, you probably factored in the boost offered from your future Social Security benefits.  Whatever the boost might be, wouldn’t you rather maximize those benefits if possible?  If the answer is a resounding “YES”, then you want to learn about the various claiming strategies, and fully discuss them with your financial adviser/financial planner.  The proper strategy can amplify your lifetime Social Security benefits significantly.

An example of one strategy is waiting as long as possible to start claiming your Social Security benefits.  The earliest age that a retiree can start claiming these benefits is 62 years old.  However, did you know that once you reach your full retirement age (between 65 -67), your social security benefits increase by 8% each year plus inflation adjustments? Wow, the money claimed increase considerably just by waiting a little longer.

Are there claiming strategies that can optimize your Social Security benefits even if you need to start collecting at an earlier age?  The answer is “Yes”.  Advantageous strategies can be applied to this situation as well when you know how to maneuver through the claiming process… you just need the proper expertise to guide you through the rules.  Once you know these rules and know how to navigate confidently through the claiming process, you can apply a strategy that works in your favor, and maximizes this money.

Some of these claiming strategies involve the idea of spousal benefits.  Here, spousal benefits can be applied to a “Restricted Spousal” strategy as well as a “File and Suspend” strategy.  According to Jim Blankenship, CFP, EA of Forbes Advisor Network, “File and Suspend allows for the lower wage earner to increase his or her benefits by adding the Spousal Benefit, while the higher wage earner continues to delay his or her benefit, adding the delay credits.” On the other hand, the Restricted Application for Spousal Benefits “provides one spouse or the other with the option of collecting a Spousal Benefit, while at the same time delaying his or her own retirement benefit.” All and all, any couple must carefully consider the particular rules pertaining to these strategies in order to determine the appropriate strategy that applies to their specific situation.

Overall, these claiming strategies can cushion your retirement years with thousands of dollars.  If you are thinking about navigating through your Social Security claiming process alone, it might be very unrealistic because the rules behind these strategies can be complex and meticulous.   Even the employees at the national and local Social Security offices cannot give any advice; therefore, it’s best to seek the help of a financial advisor who has an in-depth knowledge of the best Social Security strategies for retirees.  The world today is very different… life expectancy has increased, pensions have dwindled, medical costs have increased, and the economy remains uncertain.  Especially now, maximizing your Social Security benefits is necessary because these are unfavorable conditions.  So, make certain that you fully learn and understand the rules of each strategy before you chose.  You can add thousands of dollars to your retirement funds just by applying the right Social Security claiming strategy for you.

Investment Advisory services provided by Gregory Ricks & Associates

Blankenship, Jim. “Are You Leaving Social Security Money on the Table.” Forbes. 26 November 2012. <http://www.forbes.com/sites/advisor/2012/11/26/are-you-leaving-social-security-money-on-the-table-you-might-be-if-you-dont-understand-and-use-this-one-rule/>

Roberts, Damon. “The Retirement Planning Edge: Maximizing Social Security.” Fox Business. 27 November 2012. <http://www.foxbusiness.com/industries/2012/11/27/retirement-planning-edge-maximizing-social-security/>

Image courtesy of: http://www.bankrate.com/finance/retirement/5-little-known-facts-about-social-security-1.aspx

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5 Basic Tips for Creating a Solid Retirement Plan

You know what the picture is supposed to look like: You spend your whole life on the job, working toward that magical retirement age when your golden years begin — that era when you’re rewarded for  your life’s labors with the time and resources to pursue your passions, whether it be traveling, spending time with your grandchildren, or pursuing a favorite hobby. But with a rocky economy and the cumulative changes over the last generation, that picture might not be so clear.

No matter how near or distant your retirement may be, there are more than a few simple things you can do to prevent your retirement picture from blurring into something unrecognizable. Consider these basic tips to see to it that your retirement is spent doing what you love, and ensure your retirement picture develops the way you’ve always hoped.

1. Set your retirement goals: As with everything you’ve worked for in your life, a secure retirement is a goal you must aim to achieve. Think about what you want your retirement picture to look like. Does it involve living in a paid-off home or relocating to a house on the beach? Would you like to spend your money on yourself, donate to charities, or provide for your children? Consider your retirement picture and what it will take to make it all come together. Be realistic about your goals, and start making some sacrifices now so you don’t have to make them when you’re 80 years old.

2. Start planning now: Whether you’ve just begun your professional career or are looking at retiring in five years, start taking the steps to prepare now. If you’re on the younger side, establish an IRA or participate in your employer-sponsored 401(k), and fund these retirement vehicles with as much as you can. If your retirement is in the not-too-distant future, contribute the maximum to your retirement accounts, and start modifying your portfolio from growth-oriented products to distribution-focused products. This may mean that you’ll have to readjust your spending and savings lifestyle today, but it will pay off in the years to come.

3. Reevaluate your life expectancy: It’s no secret that the average American is living longer than ever, thanks to tremendous medical advancements, but you might be surprised by just how long your retirement years could last, and consequently, how long your retirement funds must last. According to the Society of Actuaries, a 65-year-old man has a 41 percent chance of living to age 85, and a 20 percent chance of surviving to age 90. A 65-year-old woman has even better odds. She has a 53 percent chance of living to age 85, and an impressive 32 percent chance of reaching age 90. With these statistics in mind, ramping up your savings is more crucial than ever.

4. Determine your Social Security benefits: Did you know the longer you delay retirement, the larger your Social Security checks grow? While you can officially start drawing funds at age 62, if you hold off until age 70, you could almost double your benefit amount. Even if you wait until age 66, your Social Security checks would be significantly larger. While working past age 65 might not appeal to you, the higher payout most certainly should. There are many more strategies to get the most from Social Security, especially if you’re married. To explore your options and determine when you’ll begin to draw Social Security benefits, visit www.SSA.gov. They even have an online retirement estimator to help guide your decision.

5. Work with a trusted advisor: If you really want to get the best out of your retirement plan, it’s best to place it in the hands of a capable retirement specialist. A good advisor can talk you through the process, recommend appropriate investment tools, offer practical advice on savings, and what’s more, keep an eye on your retirement portfolio. Ask friends or colleagues for some trusted advisors, and then get to work.

Gregory Ricks & Associates is a registered investment adviser.

image courtesy of: http://rjscorner.net/tag/retirement/

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How to Prevent Outliving your Retirement Savings

It’s what every retirement planner speculates; it’s what every pre-retire dreads; it’s every retiree’s nightmare – will I outlive my retirement savings?  This question sits on the minds of each and every person associated with the retirement process, and with good reason.  The U.S.’s current life expectancy is 78.3, up from around age 50 in the early 1900’s, thanks to modern medical advances and other factors.  But what happens when the economy starts reducing benefits and increasing the costs of retirement plans and care?  And what happens if I die early?  What happens if I die too late?  No one can predict every individual’s future and how they should plan and save, but we can prepare for each situation possible.  A recent report issued by the Government Accountability Office offers a look at what the experts are recommending, and how retirees make do.

The Senate Committee on Aging asked the Government Accountability Office to review three specific areas and make suggestions: strategies that experts recommend for ensuring income throughout retirement, choices retirees have made for managing their pension and assets to generate income, and policy options available to ensure retirement income.  Because everyone’s expenses, income level, health, and risk tolerance are different, it’s important to understand that there’s not single design for everyone to follow.  Make sure you talk with your retirement advisor about the best options for you, and at the same time, keep these suggestions in mind.

First of all, retirees should systematically draw down their savings and convert a portion of their savings to an income annuity to cover necessary expenses.  If you have the option of getting annuity payments from a traditional pension plan, experts suggest opting for that over a lump-sum withdrawal.  The experts also recommended delaying Social Security retirement benefits until reaching full-retirement age, and if possible, continuing to work and save. 

So do retirees actually follow this advice?  Typically, no.  According to the report, most retirees rely primarily on Social Security – and many take it before their full retirement age.  Only 6% of those with a defined-contribution plan, such as a 401(k), chose or bought an annuity when they retired.  And fewer and fewer people having traditional pension benefits available, pointing to the need for policy proposals educating retirees on the best ways to get the most out of their savings.  What’s more, employee sponsors are getting more and more worried about potential lawsuits and issues arising if they add annuities to their defined-contribution plans, further limiting retirement plan options.

So what should you take away from this report?  Even if you’re just starting to save, or you’re deep in the retirement planning stages, you need to take each and every factor into account when making decisions.  Think about it – if most retirees rely primarily on Social Security, what happens when the government cuts Social Security funding?  And what happens if they cut funding to government-sponsored medical care?  These are factors that you have to take into account, in addition to the myriad retirement plans available – annuities, stocks, bonds and pension plans.  Talk with an expert earlier than later and devise a plan that will give you the peace of mind that you and your retirement savings will live a long and happy life together.

the image is from http://www.dailymail.co.uk , by  alamy and is called article-1309939-026CC428000005DC-272_233x412.jpg

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The Ricks Report – January 22, 2013

The Ricks Report

January 22, 2013

The Markets

Investors appeared to be as optimistic as a newly-engaged couple last week. Strong housing data, a positive labor report, temporary easing of debt ceiling pressures, and some stronger-than-expected earnings results helped the Standard & Poor’s 500 and the Dow Jones Industrials indices close at five-year highs.

Commerce Department data showed housing starts climbed by 12.1 percent in December, on an annualized basis, exceeding economists’ expectations. Home construction is expected to continue to rebound, as long as mortgage rates remain low, and experts anticipate sales of new and existing homes will show improvement this week. This continued improvement in the housing market may have contributed to a more positive investor outlook.

The possibility of a debt ceiling compromise also encouraged markets higher. Unlike down-to-the-wire fiscal cliff negotiations, which caused investors to hold back at the end of 2012, discussions of temporary debt ceiling extensions by House Republicans soothed investors’ concerns.

Several companies, including several high-profile Wall Street banks, reported strong results last week, and several companies reported earnings that beat lowered expectations. This helped drive bank, transportation, and housing indices to historic or multi-year highs. Since the Transportation sector includes many highly cyclical and economically sensitive stocks, which tend to underperform when investors anticipate recession, this was seen as positive news for the economy.

According to Barron’s, a secular bull market begins when both transportation companies and the Dow Jones Industrial Average hit new highs. The Dow Jones Transportation Average reached a new high last week, but the Industrials index remains 4 percent below its highest close which was reached back in October 2007. Are we headed for a bull market? Only time will tell.

Data as of 1/18/13	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor’s 500 (Domestic Stocks)	0.9%	4.2%	13.6%	9.0%	2.3%	5.3%
10-year Treasury Note (Yield Only)	1.8	N/A	1.9	3.7	3.7	4.0
Gold (per ounce)	1.9	-0.3	2.5	14.2	13.9	16.8
DJ-UBS Commodity Index	2.1	1.7	0.2	0.7	-5.5	2.0
DJ Equity All REIT TR Index	1.2	3.6	20.7	18.6	8.9	12.6

Notes: S&P 500, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods. Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association. Past performance is no guarantee of future results.  Indices are unmanaged and cannot be invested into directly.  N/A means not applicable.

What’s the difference between America’s deficit and its debt, and how do they relate to the debt ceiling? The terms deficit, debt, and debt ceiling are likely to be bandied about by politicians and the media frequently in coming months. It’s important for all Americans to understand these terms.

The deficit

America’s deficit is its annual budget shortfall. Any year the government’s spending exceeds its revenue (the amount of money taken in through taxes and other means), it has a deficit. When the government spends less than it takes in, it is called a surplus. Deficits are controversial and have been for many years. Keynesian economics states deficits can be used to stimulate economies and help countries rise out of recession. Other experts argue governments should not incur deficits because the money paid in interest could be better spent elsewhere.

The debt

The national debt is the full amount the American government owes – all of its deficits and surpluses added together. If the government runs at a deficit of $10 million for five years, then its debt will be $50 million. Every year that a country runs at a deficit, its debt increases.

The debt ceiling

When a government runs at a deficit, it must borrow money to keep operating. The U.S. government generally borrows by selling securities such as Treasury bills, notes, bonds, and savings bonds. The amount it can borrow this way is limited by the debt ceiling, which was established under the Second Liberty Bond Act of 1917.

The United States hit its current debt ceiling, which is about $16.4 trillion, on December 31, 2012.  Before it can issue additional debt, Congress will need to raise the debt ceiling. This may make the debt ceiling a popular topic in political conversation during the next few months!

Weekly Focus – Think About It

Compromise:  n. Such an adjustment of conflicting interests as gives each adversary the satisfaction of thinking he has got what he ought not to have, and is deprived of nothing except what was justly his due.

–Ambrose Bierce, American journalist

Best regards,

Gregory Ricks

P.S.  Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this e-mail with their e-mail address and we will ask for their permission to be added.

Gregory Ricks, LLC is a Registered Investment Advisor which offers services and charges fees as set forth in Form ADV, a copy of which you should obtain prior to investment.

* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

* The DJ Global ex US is an unmanaged group of non-U.S. securities designed to reflect the performance of the global equity securities that have readily available prices.

* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

* Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association.

* The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.

* The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. The information presented is for informational and educational purposes only and not intended to be a solicitation for the purchase or sale of a security.

* Past performance does not guarantee future results.

* You cannot invest directly in an index.

* Consult your financial professional before making any investment decision.

Sources:

http://www.reuters.com/article/2013/01/19/us-usa-stocks-weekahead-idUSBRE90H1E020130119

http://www.reuters.com/article/2013/01/18/us-markets-stocks-idUSBRE90D0CG20130118

http://www.bloomberg.com/news/2013-01-18/u-s-stock-futures-little-changed-before-earnings-data.html

http://www.bloomberg.com/news/2013-01-17/housing-starts-in-u-s-jump-more-than-forecast-to-four-year-high.html

http://www.foxbusiness.com/personal-finance/2013/01/17/housing-market-in-2013-what-to-expect/

http://www.reuters.com/article/2013/01/18/us-markets-stocks-idUSBRE90D0CG20130118

http://online.barrons.com/article/SB50001424052748703596604578235570771013936.html?mod=BOL_twm_coll

http://www.investinganswers.com/financial-dictionary/economics/deficit-1077

http://www.investopedia.com/terms/f/federaldebt.asp#axzz2Iima3vBz

http://www.investopedia.com/terms/d/debt-ceiling.asp#axzz2Iima3vBz

http://thehill.com/blogs/on-the-money/economy/274591-us-to-hit-164t-debt-limit-on-dec-31

http://www.brainyquote.com/quotes/keywords/compromise.html

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Tiger Woods, Trans-Fats, and your 401(k)

Recent events have caused people to turn their backs on many of the things they once loved.  Whether it’s from a revealing crash of an incident, a health conscious decision, or a movement of market and times, trends come and go.  With every new report comes a change in the tastes of the people.   But one of these things is not like the other ones.  Unlike many of the fads, the 401(k) may not be something to be written off as a thing of the past, and you should think twice before making it a thing of your past.

 
In recent years the 401(k) has taken a few knocks.  To some people the 401(k) is the ugly step sister of the pension plan, giving employers an easy way out of having to directly provide for the retirement of their employees.  Also, one of the greatest assets of the 401(k), the company match programs, has become another casualty for many companies in this recessive war we continue to fight.  In addition to that, many employees find themselves with a lack of flexibility in their plans in the slate of investment options chosen by the employers.  These options are often selected based on how the employers can best reduce their costs, resulting in high fees for their employees.  Furthermore, the 401(k) can easily become the old ball and chain, tethering an individual to a particular company in order to keep their plan in motion and avoid the hassle of a transfer.

 

 

Some companies even require employees to stay with them for a certain number of years or they risk losing the company’s match contributions.
With all those cons, you might find yourself thinking that a scandal of multiple affairs or an early heart attack don’t seem all that bad.  But it’s important to focus on the advantages of the 401(k) that are unparalleled by most retirement plans.

 

• Take advantage of the perks inside your 401(k).  Most of the time your funds are a healthy mix of actively managed funds with high fees and index funds that offer lower costs.  Those high fees could amass to hundreds of thousands of dollars by the time you retire.  The low cost alternatives can offer you a better long term option.

 

• Switching jobs can be an opportunity, not a struggle.  The money in your current 401(k) can easily be rolled over into an IRA giving you some independence and control over your funds.  This can save you money in fees with the ability to choose from a wider variety of investments.  Also, some companies allow you to transfer your current 401(k) into their existing program.  There are plenty of options for you if you are looking to escape your current job, but don’t want all your hard investing work going down the tube.

 

• Find a window to leave. If you are looking to switch jobs, look into the rules regarding the company’s match program and the term requirements of how long you have to continue with them to avoid losing their contributions.  If its five more years, it might be worth it to just cut and run, but if you are just a few months shy, you might want to stick it out.  Either way, it’s better to know where you’re at on the board than to hope and pray you’ve passed Go and can collect the $200.

 

Your relationship with your 401(k) is like a marriage.  It has its tough times, but if you focus on the good parts, and put some work into making it a cohesive partnership, you can find yourself living happily ever after, possibly in a retirement home in Orlando.  The bottom line is this: falling into a fad or trend can oftentimes lead to disappointment (we all remember the sad day when floral print satin shirts became a fashion faux pas) but make sure you put some thought into your future before you turn your back on your 401(k).

 

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How To Take Advantage of Your 401(k)

So, you’ve been saving for retirement for years, spending your entire career penny pinching and saving every morsel you can, hoping to live out your years in a stress-free, fully-funded lifestyle.  You started young and have been saving ever since.  Most importantly, you have invested in the magical program people call a 401(k) at your company and have gritted your teeth as you watched a bit of every paycheck funnel into it.  Good for you!  You have taken an initiative that many people avoid.  As a reward for your planning and diligence, you will be granted, no, not three wishes, but three tips to using your 401(k) in the most productive way.

Many people go through the effort of investing in their 401(k) plans, but make critical errors in how they invest into it.  There are few ways to make sure that the money you pay in now, will give you the best payout in the future.

Tip 1:  Make significant contributions.  Many people think that their 401(k)’s future is mainly dependent upon the performance of the investments, but these people are mistaken.  If you invest a small percentage of your income in well performing funds, you won’t find the success that investing a higher percentage in lower performing funds will afford you.  Of course, this means a bigger chunk of your valuable paycheck, but if you can cut back and live frugally now, you will have more wiggle room later.  Also, it’s critical that you invest enough to take full advantage of any match programs from your employer.  That match offers you tax-free money on a shiny silver platter.  Investing only a small percentage of your income into your 401(k) leaves this platter sitting on the table, out of your reach.

Tip 2:  Invest for growth.  You are cutting back, buying the generic cereals and stepping away from the gator skin shoes so that you can put all you can into your 401(k).  If you are making those sacrifices, you owe it to yourself to get the most from that money.  This can be done by making smart decisions inside of your funds.  Like with any investment, this means taking on a bit of risk.  This doesn’t mean playing Russian roulette with your funds, but being too conservative can almost negate the extra effort you are making.  One way to do this is to invest more of your 401(k) money in stocks.  If your investments face average market performance, putting a higher percentage of your investment in stocks, over bonds or cash, you will find yourself in a better position in the long run.  Of course, this involves balancing your risk with the reward you are looking for, but if you consider getting a little riskier with your investments, you could find yourself with a lot more money later.

Tip 3: Avoid undoing all your hard work.  Borrowing from your 401(k) can be one of the most costly loans you can find.  By taking your money out of the fund, you will be costing yourself the growth that money would have given you.  Life brings about surprises and emergencies that may force you to borrow from your 401(k), if this happens, make sure you plan for the company to take the loan payments from your check.  If you find yourself wanting money for expenses, such as a new car, look into a personal loan or home equity line of credit for financing.  Competitive rates on these options will leave you in a better long term position.  The second part of this tip is to avoid cashing out your 401(k) when you leave a company.  Much of your hard earned money will be whisked away by penalties, fees, and growth loss.  There are a few different ways to avoid simply cashing out when you switch jobs.  Many companies allow you to roll over your balance into their plans, which means your investments and growth will hardly skip a beat with the changeover.   You can also roll your plan into an IRA, which offers a broad range of investments not offered with many other retirement plans.  The easiest option may be for you to simply leave your money in the current employer’s plan if you have a significant amount already saved.  The bottom line is that borrowing from your 401(k) or cashing out early can wipe away a lot of the money that you have been so painstakingly saving.

 

Photo courtesy of bemanaged.com

If you have been planning for your retirement and investing with your 401(k) you have put yourself on a path to success.   By doing these few simple things you can make your path smoother and that success brighter.  You are already going through the effort to save for your future, keep these tips in mind and your effort will be much more worthwhile.

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The Ricks Report – July 16, 2012

The Ricks Report

July 16, 2012

The Markets

Should the Federal Reserve raise interest rates to fire up the economy?

For the past few years, the Fed has been on a mission to lower rates as much as possible. The thinking is lower rates will spur economic growth by making it less costly for businesses and consumers to borrow money.

Unfortunately, it hasn’t quite worked as planned.

Short-term interest rates are near zero and 30-year mortgages are at a record low, yet the economy is still just muddling along, according to Barron’s. Now, some investment managers are saying the Fed should reverse course and raise interest rates.

Last week, prominent money manager David Einhorn went on CNBC and said, “I think having very low zero rates is depressing to people. I think it deprives savers of reasonable incomes, the ability to forecast a reasonable income, and it cuts down on consumption.” He went on to say low rates drive up food and oil prices and lower standards of living.

Folks relying on a stream of income from their fixed investments can probably relate very well to what Einhorn is talking about. As recently as July 2007, $100,000 worth of 1-year Treasuries would have generated about $5,000 of annual income (a 5 percent yield), according to data from the Federal Reserve. Now, it would generate only about $200 (a 0.2 percent yield).

The Fed may be in a classic Catch-22, according to CNBC. With sluggish economic growth, it’s certainly hard to justify a rate hike, yet, low rates are increasingly ineffective. CNBC says a growing number of analysts suggest the best course of action is to allow “the cash-rich private sector to sort out its own problems without the government’s interference.” However, they acknowledge it “likely would be painful, but could be the only sustainable path to recovery.”

With the Fed on the record as saying they plan “to keep interest rates at their historically low range of 0 to 0.25 percent through late 2014,” investors shouldn’t expect the Fed to raise rates any time soon, according to Fox Business. Only time will tell if this low rate strategy is the right medicine for the economy.

Data as of 7/13/12	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor’s 500 (Domestic Stocks)	0.2%	7.9%	3.1%	14.6%	-2.7%	4.0%
DJ Global ex US (Foreign Stocks)	-1.1	-0.2	-17.4	5.7	-7.9	5.2
10-year Treasury Note (Yield Only)	1.5	N/A	2.9	3.4	5.1	4.6
Gold (per ounce)	0.5	1.3	1.1	20.7	19.1	17.5
DJ-UBS Commodity Index	2.5	-0.2	-14.8	7.2	-4.3	3.5
DJ Equity All REIT TR Index	0.9	17.3	12.7	34.8	2.3	11.6

Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.  Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results.  Indices are unmanaged and cannot be invested into directly.  N/A means not applicable.

HOW DO YOU TURN A PENNY INTO 1.25 BILLION DOLLARS? Sounds like a magic trick, right? Well, there’s really no magic other than the law of large numbers.

Here’s how it works and how it may benefit our economy.

A report from the Federal Highway Administration shows Americans traveled approximately 2.94 trillion miles in motor vehicles for the 12 months ending April 2012. Now, when you figure how many gallons of gas that burns up, you get a really big number! Moody’s Economy.com chief economist Mark Zandi has done the math and, by his reckoning, each penny change in the price of a gallon of gas equates to, you guessed it, about $1.25 billion over the course of a year, as reported by CNBC.

With the wild swings we’ve seen in the price of gas, the savings – or cost – can add up quickly. A recent check with AAA showed the average price for a gallon of regular gas dropped by about $.25 over the past year. So, multiply $1.25 billion by 25 and you get, to quote Carl Sagan, “billions upon billions” of additional coin in consumer’s pockets. And, that coin could fuel further growth in consumer spending.

You’ve heard the old saying, “A penny saved is a penny earned.” Today, a few pennies saved on gas can add up to billions!

Weekly Focus – Did You Know…

There’s about $1.1 trillion of US dollars in circulation today – an all-time record high. However, most of it is not “floating” around in everyday transactions. About 75 percent of the $1.1 trillion is in $100 bills which don’t circulate much. On top of that, about 50 to 66 percent of U.S. cash is held abroad. Despite the proliferation of credit cards and debit cards, we still seem a long way away from a cashless society.

Source: CNNMoney

Best regards,

Gregory Ricks

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The Ricks Report – July 9, 2012

The Ricks Report

July 9, 2012

The Markets

Where is the recovery in jobs?

In the 10 recessions between World War II and 2001, the jobs lost during the recession were fully recovered within 4 years of the previous peak in employment, according to the blog, Calculated Risk. In fact, with the exception of the 2001 recession, the previous 9 recessions had recovered all their lost jobs within a relatively short 2½ years.

The 2007 recession, however, is a different story.

At its nadir in February 2010, the U.S. economy had shed nearly 9 million jobs from its prior peak, according to the Bureau of Labor Statistics (BLS). As of last week’s June employment report, the U.S. economy had recovered less than half of those lost jobs – and we’re more than 4 years removed from the peak employment level of late 2007, according to the BLS.

Why has the jobs recovery from this recession been so painfully slow? Here are several reasons:

(1)   Recoveries from recessions caused by financial crises – like this one – are notoriously slow.

(2)   Extremely high economic policy uncertainty emanating from Washington made corporations cautious in hiring.

(3)   The extension of unemployment benefits to 99 weeks reduced some people’s desire to find new work.

(4)   Uncertainty from events related to the euro crisis dampened business demand and the need for more workers.

Sources: Gary Becker, Nobel Prize Winner and Richard Posner blog; The Wall Street Journal

There is some good news, though, that could eventually provide a spark for new hiring.

Corporate profits as a percentage of gross domestic product (the value of all goods and services produced in the U.S.) recently hit an all-time high, according to Business Insider. This means corporate profits are at record levels. On top of that, corporate cash levels have reached historic highs which suggest corporations have plenty of money to reinvest for growth, according to Yahoo! Finance. With corporate profits and balance sheets looking solid, all we have to do is get these companies to start spending some of that cash on new hires. If that happens on a large scale, it could be a huge boost to the economy and the financial markets.

Data as of 7/6/12	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor’s 500 (Domestic Stocks)	-0.6%	7.7%	0.8%	14.7%	-2.4%	3.3%
DJ Global ex US (Foreign Stocks)	-0.1	1.0	-17.8	5.4	-7.4	4.6
10-year Treasury Note (Yield Only)	1.5	N/A	3.1	3.5	5.2	4.8
Gold (per ounce)	-0.7	0.8	3.9	19.7	19.6	17.7
DJ-UBS Commodity Index	1.1	-2.7	-13.8	5.0	-4.4	3.4
DJ Equity All REIT TR Index	1.2	16.3	10.2	33.2	2.0	10.9

Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results.  Indices are unmanaged and cannot be invested into directly.  N/A means not applicable.

INVESTORS HAVE GROWN VERY FICKLE in recent years as measured by how long they hold on to a stock. There was a time when investors were really investors and bought a stock for the long run. In fact, between 1940 and 1975, the average length of time a New York Stock Exchange stock was held before it was sold was almost 7 years, according to data from the New York Stock Exchange as reported by a September 2010 Top Foreign Stocks blog post. By 1987, it had dropped to less than 2 years. And, in the highly volatile year of 2008, the average holding period was less than 9 months, according to The New York Stock Exchange.

So, does this fast trading result in better returns?

A highly quoted study by Brad Barber and Terrance Odean of University of California-Davis published in April 2000 analyzed the results of nearly 2 million trades from a discount brokerage firm between 1991 and 1996. The study concluded that the 20 percent of investors who traded the most frequently underperformed the 20 percent of investors who traded the least frequently by a whopping 7.1 percentage points on an annualized basis after expenses.

The main conclusion of the study was, “Trading is hazardous to your wealth.”

One very interesting tidbit from the study was the gross returns between the frequent and infrequent traders were basically the same. In other words, stock selection was not a problem for the fast traders; rather, it was the expenses of the frequent trading that caused their net returns to lag far behind the infrequent traders.

From a practical standpoint, selling a stock is necessary from time to time. The study simply drives home the point that keeping trading costs as low as possible is critical to having net returns come close to gross returns.

Weekly Focus – Think About It…

“Learn every day, but especially from the experiences of others. It’s cheaper!”

—John Bogle, founder of The Vanguard Group

Best regards,

Gregory Ricks

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The Supreme Court Keeps Stirring Up The Market

The Supreme Court’s decision on healthcare has been a highly anticipated announcement for nearly every American.  The tension has broken and, as we all know, Obama-Care chalked up a big victory with the majority of the reforms being upheld.  The repercussions of the decision were obvious, allowing the government to penalize, by tax, Americans who choose not to get health insurance.  That mandate was the staple behind the implementation of healthcare reform as a whole.

 
A lot of speculation has been placed on the effect of the ruling, from the healthcare of individuals to the taxing changes, and even the possible repeal after the 2012 elections, but what has been left out of the discussion is the effect that the decision has had for investors.  The financial distribution in the healthcare industry has found itself with a new layout and investors are wise to take notice of the changes.

 
The five to four decision has been noticed in the market in terms of the long term effects that the mandate and reforms will have on different aspects of the medical industry.  In some parts, stock prices jumped, while in others, it dropped, and investors have an explanation for each.

 
The decision caused a drop in the stocks of medical devices because of the tax riding on them.  This tax is enough to cause investors to find a new home for their money.  As could have been expected, the stocks of the insurance companies took a hit as well, but the decision made by the courts wasn’t completely black and white.  A ruling to repeal the individual mandate to buy insurance while not allowing insurers to refuse those with pre-existing conditions would have been an even big hit to the insurance sector.  The repeal of the Medicaid portion of the healthcare reform caused the shares of those Medicaid providers to rise, assuming they would see a rise in customers.

 
Hospital stocks, on the other hand, hit a sharp rise.  This movement was the result of a few different things.  First, the individual mandate requiring health insurance will save the hospitals from providing free care to those who cannot afford it.  That will save them a lot of money and is expected to make investors a lot as well.  Also, with more people having insurance, they will be less hesitant to go to the hospital for treatment.  As morbid as it may seem, a hospital is, at its basic form, as business and, as with any business, the more paying customers you have coming through your doors, the better.
The biggest effect on investors from the Supreme Court’s decision: certainty.  Despite all of the forecasting and planning, many investors were still somewhat hanging in the balance trying to determine what would happen following the decision.  Even though they have been hit with a slew of changes, at least now they can move forward knowing what’s in front of them.

 
Along with that certainty comes the question of whether the landscape will change again following the 2012 election.  Mitt Romney has vowed that, if elected in November, he would work to repeal Obama-Care, almost in its entirety.  If Obama is to win a second term, it’s safe to assume he will work to solidify the laws and reforms in his trademark healthcare plan.

 
So overall, where does that leave us?  For now, hospital and Medicaid stocks are up.  Insurance and medical device stocks are down.  Investors can walk on a firm ground they have been waiting for since the beginning of the Supreme Court case, but that ground will get shaky again as November approaches.  Of course, any changes at this point wouldn’t just show in the stock market, but also on your taxes and with your insurance costs.  At this point, it’s wise to just hold on to your hats, and plan for your inability to plan.

 

Photo courtesy of: http://www.cricpa.com

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