Save Taxes! Improve Your Retirement Too!

Oct 23 2014

Recent news from the IRS and SSA will affect your ability to save more in tax deferred and tax free accounts starting in 2015.  And as a bonus you’ll be able to reduce your current taxes if you so choose.  Here is a summary:

  1.  401(k), TSP and 403(b) elective contributions will increase to $18,000 from $17,500
  2. Catch-up contributions to these accounts for those age 50 or older will increase from $5,500 to $6,000
  3. So, if you are 50 or older you’ll be able to contribute a total of $24,000 to these accounts next year
  4. Unfortunately, IRA contribution limits are not changed.
  5. Several other employer plan limits have changed.

iStock_000003513487XSmallOn a related note, up to $118,500 of earned income will be subject to Social Security taxation (up from $117,000). If you’re a high income earner you’ll pay about $93 extra in Social Security taxes.

Tax laws and rules are constantly changing make sure you stay on top of them.

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The World’s a Mess. I Have to Do Something!

Oct 22 2014

shutterstock_61377316For those of you who read these pages regularly (even somewhat), this may begin to sound like a broken record. “This is 2014 you know, Shane.” OK, your digital music with a bad track sector on the hard drive.

The issue is “What should I do with my investments? I can’t leave them as they are. I’ll get killed when the world stops turning and Hell freezes over.”

Even my family, friends and acquaintances who know my investment philosophies and strategies have been on my case lately. “Why? About what?” About everything!

Have you noticed the news? Afghanistan, Iraq, ISIS, terrorists, climate change, European economy, China’s economy, Ebola, politics (pick your own side), upcoming elections, expected stock exchange “correction”, inflation predictions, interest rate predictions, bond prices falling, race riots in the streets, police out of control, illegal immigrants, lack of border controls, immigration policies, blah, blah, blah.

Given the state of our national and world affairs, shouldn’t you be adjusting your investments to account for all the turmoil?

NO.

The media are always all over doom and gloom. That’s how they get you watch, listen, or read them. The vast majority of people go about their days in a positive situation everyday but that’s not what is presented for our viewing pleasure. So the media are biased and brainwashing in multiple ways. Stop listening to them.

No one knows the future. No one knows the effect any of these issues will have on the investment markets. Financial professionals can’t get it right yet people who spend little time or efforts in the financial world think they can out-guess the markets.

Here’s what we have; history and we know the impacts from past significant events.

The history of mankind is full of crises. The headlines we face today are no different and no worse. The history of the U.S.A. alone has faced worse events and yet here we are. Mankind perseveres.

Just back in 2008, the financial sector of our economy threatened to collapse. The stock market lost over half its value from October 2007 to March 2009! The “dot-com bubble” of March 2000 through September 2002 dropped almost 40%. Do I have to mention the Great Depression?

What about the recession of the early 1970s or the inflation of the late 1970s and early 1980s? Some of you seasoned folks remember the WIN buttons? Gasoline rationing of the early 1970s? The choking smog. The pollution. The Rust Belt. The crying American Indian commercial.

Ebola? The flu pandemic of 1918 is the deadliest in modern history. It infected an estimated 500 million people worldwide–about one-third of the planet’s population at the time. It killed an estimated 20 million to 50 million people. 25 percent of the U.S. population became sick and some 675,000 Americans died during the pandemic. It swiftly spread around the world; even the remote areas. There were no drugs or vaccines to treat the flu strain or prevent its spread.

Wars? WWI. WWII. The American Civil War. Revolutionary wars. The Cold War. Nuclear annihilation, MAD, civil defense exercises, Cuban Missile Crisis. Terrorists attacks the world over.

From the 1960s to 1980s alone, there was the assassination of a president, the attempted assassination of a president, the assassination of high ranking government official and presidential candidate, and the assassination of three civil rights leaders. In total, four U.S. presidents killed.

Life goes on.

There are always new technologies. New levels of productivity. New health breakthroughs. Better methods of food production. More wisdom. More people in countries able to rise above poverty and ignorance. The breakthrough technologies of the near future will change our world and lives like never before. Everything you know today will be different in 50 years. We will do things that are science fiction today.

Bottom line is mankind is always striving to be better than yesterday; with a few exceptions.

Here are some guarantees you can take to the bank.

  • The stock market and all the other investment markets will be up and down in the short-term, however…
  • It is always up in the long term—see the preceding paragraph.
  • Trying to second guess news events and market movements is a losing proposition. There is plenty of investor data to back this up.

Follow the appropriate investment strategies for your objectives and forget about the fog and friction of external events. Have an investment strategy based on taking advantage of the three points listed above.

Want to know more? Start here:

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More Boring Investment Insights for Your Retirement Account

Oct 21 2014

“Ugh! Another boring investment article, right?” If only it wasn’t so important to your future wealth and quality of life. First a little set-up before getting to my real points which are strategies for your use.

shutterstock_67583179A little background.

The media are all over the “the next correction” in the stock market (“correction” equals a significant drop). After all, it’s been up since 2009; surely it has to pop sometime soon. “So what”, you ask. Word of these stock market events spreads eventually causing us investors to act in silly and costly ways.

To recap, the stock market hit a bottom in March 2009 and began the rebound. There was a correction (drop) in 2010 of about 13%. Again in 2011 of about 15%. In 2012 there was an 8% dip. But the big picture is a solid up since March 2009.

Besides the stock market correction is the inevitable inflation and interest rate hikes that will drive down bond prices. Meaning, if you hold bond funds in your 401k/TSP, their value will drop. Between the sluggish economy and the resulting government actions to fix it, we have economic conditions that are ripe for inflation. Inflation leads to higher interest rates. Higher interest rates lead to decreased bond values.

Example: You buy a bond for $1000 that pays 3% interest. Say interest rates rise to 4%. You want 4% so you decide to sell your 3% bond. No one wants your 3% bond when they can buy a 4% bond. You have to drop your price to sell your bond. Voila! Bond values decrease in a rising interest rate environment.

Finally, the real points.

What is a 401k/TSP/IRA investor to do? The financial journals are all over the map on opinions. Simplify the discussion.

We boil down the types of investors into two pots: wealth accumulators and soon-to-be retirees seeking preservation of assets but also requiring some growth to stay ahead of taxes and inflation. While there are other types of investors with rather specific or sophisticated needs, the majority of you fall in the wealth accumulator category.

Wealth accumulators require a down market to accumulate the maximum shares of ownership (mutual fund shares in retirement accounts). Ownership equals wealth. “What?!”

You read me right. Wealth accumulators need the stock market to go down. Only in a down market will your regular payroll contributions have a chance to buy enough ownership to build wealth.

Here’s the rule of the game; s/he who retires with the most shares wins! Stop judging your success on your account value. Account value is a by-product of ownership.

Wealth accumulators shouldn’t worry about market corrections. In fact, they should welcome it. They should be dollar cost averaging and have an allocation that leans heavily to stock funds. Rebalance your portfolio after your allocation is off by more than 5% (these bolded strategies are explained in the articles linked below).

Soon-to-be retirees should have an allocation that won’t follow the market all the way down. Say, a portfolio of no more than 30 or 40% stocks. This is a proportion of stocks recognized as being able to maintain enough growth to offset taxes and inflation without too much risk.

Examples.

From September 2008 to March 2009, the stock market dropped 48%. A portfolio of 80% stocks dropped 38%. For wealth accumulators, that’s great. You are raking in ownership at bargain basement prices. A portfolio of 40% stocks went down 18%. If closing in on retirement, you can survive that reasonable drop in portfolio values to ultimately catch the rebound in stocks.

Details are missing in this article. For more go to:

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Depositor Insurance; FDIC and SIPC – They’re the same, right?

Oct 08 2014

Published by under Investments

Sign_Brodway_crossing_Wall_StreetKinda and kinda not. FDIC is the Federal Deposit Insurance Corporation. An agency of the federal government. SIPC is the Securities Investor Protection Corporation. A non-profit, non-government, corporation funded by the securities firms who belong to the SIPC organization. Both provide insurance protection over a depositor’s money but that protection is not all-inclusive.

With a FDIC insured bank or savings institution, a customer’s money is insured safe. With FDIC, the U.S. government protects depositors’ money in banks by insuring your deposits with the bank. FDIC insurance covers your checking accounts, savings accounts, money market deposit accounts and certificates of deposit and a few other accounts. If the bank fails, your money would be at risk without FDIC.

FDIC insurance does not cover other financial products and services that banks or savings associations may offer such as stocks, bonds, mutual funds, life insurance policies, annuities or other securities. These products and services are not typically held at the bank or savings institution. These investments and products tend to reside outside the bank or savings association.

The standard insurance amount is $250,000 per depositor, per insured bank. All accounts at one bank for the same owner are typically added together. There are a few exceptions as always. Learn more at www.fidc.gov.

The SIPC protects customers of SIPC-insured brokerage firms facing financial difficulties. The SIPC coverage insures your cash and securities being held by your broker. It’s important to understand the coverage details.

The coverage amount for securities is up to a maximum of $500,000 which includes a coverage limit on the amount of cash at $250,000. The coverage limits are effective when the SIPC trustee is appointed to oversee the liquidation of the brokerage and process customer claims. This may be months after the brokerage becomes insolvent.

The market value of your securities is not covered but the amount of securities you own is. Say you own 100 shares of ‘ACME Coyote’ stock. The SIPC trustee will see that your 100 shares are returned to you. However, if the 100 shares of stock are not available, then you will be insured for the value of the 100 shares at the time the SIPC trustee was appointed—up or down.

SIPC covers most forms of securities like stocks, bonds, mutual funds; generally any registered securities. It does not cover unregistered securities or limited partnerships, annuity contracts, futures, or precious metals, to name a few. Learn more at www.sipc.org.

 

Image by Benoît Prieur (Agamitsudo), Cc-by-sa-3.0 [CC-BY-3.0, CC-BY-SA-3.0 or GFDL], via Wikimedia Commons

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Frequently Asked Questions About VA Loans

Sep 30 2014

iStock_000004276434XSmallBy Joe Gladden, Veteran Realty Serving America’s Military, Inc. and Susan Wallace, Senior Loan Officer Access National Bank

This is a follow up to our previous posts about VA Loans. It is an accumulation of questions we have seen over the years covering various personal circumstances and dual eligibility. We hope you find these helpful.

Entitlement…What is it? Entitlement can be explained as the amount of money available to you from the VA to use as a guarantee for the lender providing your VA Loan in the event that you default.

Why is it important? Entitlement is the reason you can have a 100% loan with no down payment. When the VA gives a guarantee of your entitlement to the lender, it is kind of like a down payment to the lender. No money is exchanged, but there is a written guarantee from the VA that if you default the VA will pay the lender that specified amount.

Here are some common questions about VA entitlement:

Q – I purchased a home with my VA loan. I am now divorced but my ex-husband still lives there. Can I get another VA loan?

A – Yes, in most cases you can. You would use 2nd tier entitlement. Please see the article specifically addressing it here.

Q – When I was married my husband used his VA loan to purchase our home but we have since divorced. I have VA eligibility as well based on my service. Can I assume the mortgage in my name only?

A – Yes you certainly can. You also have the option of refinancing the home in your name only and substituting your entitlement for his. You would still need to credit qualify in either instance.

Q – We purchased a home using my eligibility for a VA loan. Both my wife and I have eligibility. We have to move and would like to purchase a new home but I don’t have enough entitlement without selling the old one. Is there any way to still get a new home?

A – Yes, you would use dual entitlement. That means you could use a portion of each of your entitlements to get the home. Or you could use your wife’s eligibility of entitlement.

Q – Both my wife and I have entitlement. Can we use both to double our county limit buying power?

A – No. The VA guarantees only up to the county limit even if there is more entitlement available.

Q – Ten years ago my VA financed home was foreclosed on. How does that affect me today?

A- This is the instance mentioned in the beginning of this article. It means that the VA paid out to the lender a specific amount of money and that money was then charged against your entitlement unless you repaid it. To find out the exact amount of money charged against your entitlement you would need to obtain a copy of your certificate of eligibility. That amount would then be deducted from the amount of entitlement you have available today based on the county/state you are purchasing or refinancing in.

Example:
You are purchasing in TX with a $104,250 of entitlement available to you. That is reduced by the $36,000 paid out by the VA to the lender for your foreclosure which leaves an entitlement of $68,250. $68,250 x 4 = $273,000 which would be the maximum 100% loan (zero down payment) amount available.

Q – I heard that you can only have your entitlement restored only one time, is that correct?

A- No. If you sell the home you financed with your VA entitlement, you can apply for restoration of your entitlement as many times as you would like. If you still own a home that is now PAID OFF that you used your VA entitlement to buy, then you may ask for a one time restoration to purchase another home. However once you purchase another home with that one time restoration, you would not be able to use the VA loan again until you sold the original “paid off” home.

Remember, this only applies to a paid off home, meaning you own it free and clear. If you own a home that has a VA loan on it still, you can more than likely qualify for 2nd Tier Entitlement and have a 2nd VA loan.

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