Looking back, we’ve had another year of lackluster economic growth. Technically we’re not in a recession, but it just feels like we are. We’ve seen consistent growth since mid-2009, but with the steep drop before then, small steps in growth don’t help enough. Usually we see big jumps in growth and this recovery has not produced the kind of increase we need yet. If the fiscal cliff issues get resolved fairly soon, and businesses and consumers know the new rules of the game, some of the pent up cash in both the consumer and business accounts can be put to better use.
Think your employer’s credit union is working in your best interest? Be aware that the credit union may be selling you products for which they are paid a hefty commission. We have seen several cases where an employer’s credit union has done a great disservice by placing the employee’s assets in inappropriate products, faulty allocations and “loaded” mutual funds. Seek out a fee-only advisor’s input, even if only for a second opinion before you hand over your hard-earned retirement fund.
The 3rd Quarter Newsletter has a visual view of our complex tax system. Taxes are the biggest lifetime expense for so many and corraling these expenses when possible adds up to a bigger retirement pot, or better chance for a child or grandchild to go to college. We have more about taxes on our blog at http://nestbuilderfinancial.wordpress.com/ .
The “fiscal cliff” is coming our way in January 2013. Because Washington failed to agree on a budget, taxes will go up and cuts to the budget will be implemented…unless action is taken to halt or alter the course of planned changes. Changes include the increase in long-term capital gains tax to 20% and an onerous increase in dividend taxes from 15% to the ordinary income tax rate. Also, a 3.8% surtax to help pay for the health care overhaul will be added for married couples with adjusted gross income of over $250,000 or singles with adjusted gross income of over $200,000.
Parents are often concerned when their children first start driving and rightly so. The dawn of texting adds a distraction and teens can’t seem to resist texting for any length of time. Even sneaking a peek can have their eyes off the road at a crucial moment. Teens – and adults for that matter – need to understand there are serious consequences for causing an accident while texting and driving. This would be a preventable accident and would most likely cause your insurance rates to increase, that is if they don’t drop you altogether.
From our 2nd quarter newsletter: If you like to cook chances are you’ve purchased ingredients just to try a new recipe and then after you’ve made your new dish you have extra of the specialty item. Or you buy cream for coffee when guests come but don’t use it yourself. Maybe it sits in your fridge until it goes bad. Rather than waste these items, Google them! Search with the word recipe and list the item or items you have on hand to find some fresh ideas on how to use these foods before they go to waste.
Mary was honored to participate on a panel at this year’s Women Advisor Forum on the subject of decumulation. We spend years focused on accumulating wealth and as retirement nears we need to have a strategy to “decumulate” or draw down our assets without running out of money before we run out of time. All of the panelists agreed that the “4% Rule” was only a starting point for determining how much a retiree could take out of the portfolio. Other considerations include whether or not the retiree has a pension income, Social Security or other sources of income such as investment real estate or a small business. Reverse mortgages are starting to look more attractive for people who own their homes outright and more tools will surface to meet the growing needs of the boomer generation. There was much we covered and more we didn’t get to before our time ran out.
An updated view of market performance by asset class shown by MoneyGuidePro indicates that the average annualized returns for a balanced portfolio was about 8½% from 1970 to 2011. However, after taxes, inflation and expenses the real return was considerably less when invested in taxable accounts. Tax-deferred accounts like 401(k)s and IRAs keep more money working for you now, but you’ll have pay Uncle Sam his share later.
Take a look at your 401(k) statements and documents – you may find more information about the expenses embedded in the plan this year than in the past. Expenses can be a real drag on your investment performance and you might want to take that into consideration when designing your overall portfolio.
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Are you convinced this recovery is real? Growth increased to 3% in the 4th quarter of 2011 and the unemployment rate has been falling. The market has roughly doubled since the dark days in March 2009 but many individual investors have sat on the sidelines. Yes, there are domestic and international issues that are riding a brake on the recovery, but the economic engine keeps on chugging.
Do you want your money to work harder for you? In addition to your mix (allocation) of stocks/bonds/cash/etc. these 3 items can have a significant impact on your real returns: expenses, taxes, and inflation.
The good news is that there are steps you can take to reduce the drag on your portfolio. We suggest you work with a fee-only advisor to implement strategies that will have your money work harder for you.
Happy New Year! Kiplinger Magazine and the National Association of Personal Financial Advisors (NAPFA) have again teamed up for Jump Start Your Retirement Plan Days. We will join other NAPFA-advisor volunteers to offer free retirement advice via the phone For more information, go to http://www.napfa.org/consumer/FreeFinancialAdvice.asp