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Financial Considerations for 2014

September 18th, 2013 | No Comments | Posted in Financial News

What changes should we consider making for next year?

shutterstock_1497734242014 is really not too far away. Fall is the time of year when the financially savvy start to look for ways to reduce their taxes and make year-end moves in pursuit of key financial objectives.

What might the big picture hold? Absent a crystal ball, let’s turn to the September edition of the Wall Street Journal’s Economic Forecasting Survey. The WSJ asks 52 economists for their take on things each month, and here is how they see 2014 shaping up for America: GDP of 2.8%, a jobless rate declining from the present 7.3% to 6.6% by the end of next year and consumer inflation of 2.5% or less through the end of 2015. These analysts also see the Federal Reserve keeping the benchmark interest rate at 0-0.25% for all of 2014. As for the yield on the 10-year note, their consensus projection has it hitting 3.28% in June 2014 and 3.57% in December 2014. They also see home prices rising 5.22% YOY in 2014 after a 7.85% gain across 2013. Oil, they think, will average $102.73 a barrel on the NYMEX this December, declining to $98.17 a barrel next December. For its part, the International Monetary Fund projects 3.8% inflation-adjusted global growth next year, and a 4.3% tumble for global non-fuel commodities in U.S. dollar terms. These are all macro forecasts worth keeping in mind.1,2

Now, how about your picture? Beyond these macro forecasts that may affect your business and personal finances, what moves might you consider?

Can you max out your IRA or workplace retirement plan contribution? If you have, congratulations (especially if you benefit further from an employer match). If you haven’t, you still have the chance to put up to $5,500 into a traditional or Roth IRA for tax year 2013, $6,500 if you are 50 or older this year, assuming your income levels allow you to do so. (Or you can spread that maximum contribution across more than one IRA.) Traditional IRA contributions are tax-deductible to varying degree. The contribution limit for participants in 401(k), 403(b) and most 457 plans and the Thrift Savings Plan is $17,500 for 2013, with a $5,500 catch-up contribution allowed for those 50 and older.3,4

Incidentally, the FY 2014 federal budget set out by the White House proposes some changes to IRAs & 401(k)-style plans in 2014. First, if an individual’s total tax-deferred retirement savings through these plans is great enough to produce yearly retirement income of $205,000 for the individual and his/her surviving spouse, then further contributions to such accounts would be nixed. (Today, it would take savings of nearly $3.5 million to produce such a retirement income stream.) Second, the Stretch IRA strategy would basically vanish: the FY 2014 budget proposes that all IRA inheritors follow the 5-year rule, in which an inherited IRA balance is reduced to zero by the end of the fifth year after the year in which the original IRA owner dies. (Disabled IRA inheritors and certain other beneficiaries would be exempt from the 5-year rule.)5

Should you go Roth in 2014? The younger you are, the more sense a Roth IRA conversion may make. If you have a long time horizon to let your IRA grow, have the funds to pay the tax on the conversion, and want your heirs to inherit tax-free distributions from your IRA, it may be worth it. If you think you will pay less tax in the future or you might die with a large charitable bequest, then it may not be a wise move.

Can you harvest portfolio losses before 2014? This is the time of year to think about tax loss harvesting – dumping the losers in your portfolio. You can claim losses equivalent to any capital gains recognized in a tax year, and you can claim up to $3,000 in additional losses beyond that, which can offset dividend, interest and wage income. If your losses exceed that limit, they can be carried over into future years. It is a good idea to do this before December, as that will give you the necessary 30 days to repurchase any shares should you wish.6

In terms of taxes, should you delay a big financial move until 2014? Talk with a tax professional about the impact that selling or buying a home or business might have on your 2013 taxes. You may want to wait. Receiving a bonus, getting married or divorced, exercising a stock option, taking a lump-sum payout – these events have potentially major tax consequences as well. Business owners may want to consider whether to make a capital purchase or not.

Look at tax efficiency in your portfolio. Investors were strongly cautioned to do this at the end of 2012 as the fiscal cliff loomed; it is a good idea before any year ebbs into the next. You may want to put income-producing investments inside an IRA, for example, and direct investments with lesser tax implications into brokerage accounts.

Finally, do you need to change your withholding status? If major change has come to your personal or financial life, it might be time. If you have married or divorced, if a family member has passed away, if you are self-employed now or have landed a much higher-salaried job, or if you either pay a lot of tax or get unusually large IRS or state refunds, you will want to review this with your tax preparer.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – online.wsj.com/public/resources/documents/info-flash08.html?project=EFORECAST07 [9/12/13]
2 – forbes.com/sites/billconerly/2013/09/02/economic-assumptions-for-your-2014-business-plan/ [9/2/13]
3 – irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics-IRA-Contribution-Limits/ [9/12/13]
4 – shrm.org/hrdisciplines/benefits/articles/pages/2013-irs-401k-contribution-limits.aspx [10/19/12]
5 – blogs.marketwatch.com/encore/2013/09/09/budget-talks-could-alter-401k-ira-rules/ [9/9/13]
6 – dailyfinance.com/2013/09/09/tax-loss-selling-dont-wait-december-dump-losers/ [9/9/13]

September – Monthly Economic Update

September 18th, 2013 | No Comments | Posted in Monthly Economic Update

Weekly Economic Update

3 Ways You May Be Throwing Money Away Without Realizing It

September 18th, 2013 | No Comments | Posted in Lifestyle

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You aren’t a dimwit. You’re just stressed.

According to a recent study published in Science magazine, if you’re poor and mismanage your money, you may be very capable of making good financial decisions. But you’re trapped in a vicious circle: The inevitable problems that come with being poor are likely affecting your judgment, which means you’re making bad decisions, which end up making you even more poor.

With that in mind, if you’re financially struggling – or know someone who is – here are three ways people end up throwing money away when making common financial decisions: buying a house, buying a car and investing in a retirement plan. They’re all generally good ideas, of course, but just because you’re doing something smart doesn’t mean you’re doing it right.

Stretching to take out a mortgage. Few personal finance experts will say it’s stupid to buy a house – but they will tell you that you can buy one too early in life, before you’re financially ready. Many people also buy too big of a house.

“I can’t tell you how many people I’ve seen get swept up in the romantic notion that they need to own a home or that they need to own a more expensive home, only to later regret it when they end up with a beautiful place but no money,” says Scott Halliwell, a certified financial planner with USAA, a national financial services company based in San Antonio that mostly serves military members and their families.

Halliwell says too many people try to buy a house before they’ve learned to budget. These red flags, he says, should alert you that you aren’t financially ready: if you don’t yet have an emergency fund, you can’t save up for a sizable down payment (20 percent is standard) or you’re trying to find another way to buy a house, such as taking on a high interest rate in place of having that down payment.

He has a point, especially considering that a house comes not only with a monthly mortgage that you’ll likely be paying for the next 30 years – but also homeowners insurance, yard maintenance, appliances and furniture to buy and the inevitable home repairs. Most lenders say your house payment shouldn’t be more than 30 percent of your income, so if you’re searching for a way to buy a house that is going to be, say, 40 or 50 percent of your income, you might want to do some serious reconsidering.

Halliwell adds: “We always talk about how much money someone can save if they just stop drinking fancy coffee. The truth is, coffee doesn’t do anywhere near the damage this move can.”

Buying a too-expensive car. If you’re not paying attention, the car you’re buying may not seem all that expensive. The auto finance manager may suggest that instead of three years, you pay for six, and that $531 monthly payment for an $18,000 car decreases to $282, obscuring the fact that you’ll end up paying far more in the long run, especially if you aren’t getting a good interest rate.

For instance, if your car’s interest rate is around 4 percent, which is average these days, paying the loan over six years instead of three means you’ll pay $1,145 more just in interest. That might be worth it for the lower payments. But let’s say you have bad credit and you’re paying a high interest rate. Buying an $18,000 car at 18 percent (a typical interest rate if your credit score is, say, 550 and you’re buying a used car) and paying it over three years means you’ll shell out approximately $5,000 just in interest. Spreading the loan over six years means your interest alone will climb to $11,000. Your $18,000 car is actually a $29,000 car.

Of course, it can be easy to rush into buying a car, especially if your current vehicle is on life support. But not only should you make use of the many monthly loan payment calculators for car-buying on the Web, remember to research how a new or new-to-you car will affect your insurance and your auto’s gas mileage.

“We’re certainly a nation in love with automobiles, and I’m right there with the crowd,” Halliwell says. “Even so, I’m forever amazed at the number of $40,000 to $50,000 cars and trucks I see on the road every day. The payments on those loans are huge by average financial standards, and the cars are often worth thousands less than the purchase price within days of buying them.”

Many experts suggest ensuring that the car you buy is no more than 1/10th of your gross annual income. So if you make $70,000 a year, you shouldn’t buy more than a $7,000 car. Even if that doesn’t seem realistic, it’s a good blueprint to try to follow. After all, six years is a long time to lock yourself into paying for a car, which depreciates the moment it is driven off the lot.

“I regularly get questions from people about what they can do to fix their auto loan situation when only three years into their six-year loan term, their circumstances change and they can no longer afford the payment,” Halliwell says. “Unfortunately, in many cases, they owe thousands more on the loan than the vehicle is worth, so they’re often stuck.”

Withdrawing money from your retirement plan for anything other than retirement. Yes, times are still tough for some people, but short of dredging up money to save your house from going into foreclosure or raising ransom money for a kidnapper, most financial gurus will tell you to stay away from your 401(k) or individual retirement account.

“Too many people take money out of a qualified plan or IRA to pay for everyday expenses. The Department of Labor has a word for this: ‘leakage,'” says Kenn Tacchino, professor of taxation and financial planning at Widener University in Chester, Penn.

How devastating can it be? Tacchino says that when he is in the classroom, he offers his students this example:

“A 25-year-old is getting married and he wants to buy a $5,000 engagement ring. He is in the 28 percent marginal bracket and he will pay a 10 percent penalty to take the money from his IRA. He will need to take out $8,064 to buy the ring and pay the taxes. He throws caution to the wind and takes out the $8,064. Five thousand goes to buy the ring, and $3,064 goes to taxes. Had he kept the money and earned an 8 percent rate of return, he would have had over $195,000 at 65 for retirement. That’s quite a ring!”

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Say Goodbye to the Password

September 18th, 2013 | No Comments | Posted in Lifestyle

fingerprintHere’s the fundamental problem with passwords: They are most effective in protecting a company when they are long, complicated and changed frequently. In other words, when employees are least likely to remember them.

As a result, technology companies are rushing to provide solutions that are both more secure and more convenient. Many laptops now come with built-in fingerprint readers. Smartphones and other devices, too, are opening up biometric options such as facial and voice recognition.

Apple Inc. last year acquired AuthenTec Inc., a developer of fingerprint-sensor technology, and on Tuesday it said its new iPhone will come with a fingerprint sensor. Microsoft Corp. says its Windows 8.1 operating system, due out next month, is “optimized for fingerprint-based biometrics.” Biometric authentication will be usable more extensively within the system, the company says.

Google Inc., PayPal Inc., Lenovo Group Ltd. and others, meanwhile, have come together in an organization known as the FIDO (Fast Identity Online) Alliance, which is aimed at creating industry standards for biometric and other forms of so-called strong authentication.

Google is also experimenting with a new kind of hardware token, created by Palo Alto, Calif.-based Yubico Inc. Like the traditional hardware tokens that generate random numeric passwords and which companies have used for years, the Yubico devices generate temporary passwords to be used as a second form of authentication.

But instead of having to read the password off the token and retype it, employees can simply plug the token into a USB port or touch it on a mobile device using near-field communication, a technology through which electronic devices communicate by making physical contact.

Google is testing the tokens with employees this year, and plans to offer them to consumers next year as a way of logging into Gmail and other Google accounts more securely.

Mayank Upadhyay, a director of security engineering at Google, says the tokens are easy to use and have strong encryption.

“We believe that by using this token we’ve raised the standard of security for our employees beyond what was commercially available,” he says. The token works with Google’s Web browser Chrome, and “works very seamlessly for people in their day-to-day workflow here at Google,” he says.

Another new option, from RSA, the security division of EMC Corp. and creator of the widely used SecurID hardware tokens, is risk-based authentication.

This technology sifts through masses of user data from various groups at a company to establish “normal” behavior, then assigns risk scores to each user. If an employee does something unusual, like log in from a new location, use a different computer, or try to access a system other than his or her usual, the risk score will increase, and the employee may be asked to provide additional authentication, for example by verifying his or her identity over the phone.

Many people expect the security landscape to change rapidly as more and more employees bring their own smartphones and other devices to work. While the proliferation of individual devices is often seen as a security threat, some analysts suggest that mobile devices can improve security by making it easier to use biometric authentication. Most mobile devices feature a microphone and camera, and can pinpoint an employee’s location as well.

Yubico Inc. Yubico’s random-password token plugs into a USB port or can be touched to a screen.

“We think that biometric authentication is going to be significantly more popular, and the driver and enabler of this is mobile computing,” says Ant Allan, research vice president at Gartner Inc. of Stamford, Conn.

He explains that for large enterprises, installing new hardware for each employee can be very expensive, thus a system that draws on commonly owned personal devices has clear economic advantages. Moreover, employees with mobile devices are likely to find a fingerprint reader much easier to use than remembering and typing passwords.

Other developers of groundbreaking security tools include Agnitio SL of Madrid, which makes voice-recognition software used in law enforcement. The company has developed a system that allows workers to log in by speaking a simple phrase.

London-based PixelPin Ltd., meanwhile, wants to replace passwords with pictures. Choose a picture of your spouse, for example, and log in by clicking on four parts of her face in a sequence you’ve memorized. A photo is easier for people to remember than a text password, and harder for others to replicate, says company co-founder Geoff Anderson.

And, looking further into the future, researchers at the University of California, Berkeley, are studying the use of brain waves as authentication. Test subjects in the research wore a headset that measured their brain-wave signals as they imagined performing a particular task, and the researchers were able to distinguish between different people with 99% accuracy. In theory, an imagined task like this could become a worker’s “passthought.”

Most experts expect companies to use a variety of different measures. Saratoga Hospital, in Saratoga Springs, N.Y., for example, uses fingerprint readers as a more secure alternative to passwords. But while they’ve solved many of the hospital’s security problems, the print readers don’t work for everyone. A few elderly volunteer workers struggle to hold their hand still, and the readers don’t work when people are wearing gloves, or when their hands are too dry, says Gary Moon, security analyst at the hospital. Some employees also have refused to hand over their prints.

As a result, Mr. Moon says, the hospital is still using passwords as a backup security system.

“There really isn’t any ‘one size fits all’ in authentication,” says Vance Bjorn, founder of DigitalPersona Inc. in Redwood City, Calif., which supplied the fingerprint readers to Saratoga Hospital. Companies need access to a combination of different technologies, Mr. Bjorn says.

“One technology solves certain problems, but it might not be the right mix of security, convenience, cost and ease of deployment for everyone.”

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How to Understand a Credit Card Point System

September 18th, 2013 | No Comments | Posted in Lifestyle

Ratings Sites Like Yelp and Angie’s List in the Hot Seat

September 18th, 2013 | No Comments | Posted in Lifestyle

review

Millions of consumers visit ratings sites like Yelp before they choose whether to patronize a business, but with a myriad of ratings sites, who’s judging the judges?

Consumer Reports investigated the business models of five sites including Yelp and Angie’s LIst.

The magazine said that advertisers on some sites could have a greater influence on user tools like search result rankings.

Consumer Reports also said a customer’s take on a business can vary widely from one ratings site to another. One plumbing business in the San Francisco Bay area received an “F” on Angie’s List, “A+” on the Better Business Bureau and 2.5 stars out of five on Yelp.

“No opinion is monolithic,” Consumer Reports’ senior writer Jeff Blyskal told ABC News. “If you’re just looking at one of those, you’re going to get a different decision than when you look at all of them.”

Blyskal’s concern about reviews on Yelp is the small percentage of reviews that may be fraudulent.

“There’s an incentive to game the system,” Blyskal said.

Yelp says it has systems in place to protect consumers from fake reviews and to make sure the most useful information is displayed prominently.

Yelp also offers business owners a set of tools to provide accurate information, such as communicating with users privately or publicly, said Kristen Whisenand, a company spokeswoman. Another distinguishing feature of Yelp, she notes, is that it’s a community review website, though users don’t have to sign up for an account to read comments.

“We really rely on that community of users,” she said. “We find the most helpful reviews are people who are continuing to return to the site.”

Darnell Holloway, Yelp’s manager of local business outreach, said the company is “very transparent about the fact that we don’t highlight all the reviews submitted to Yelp.”

As of last quarter, there were 42 million reviews on the site. Yelp is displaying about 75 percent of those reviews, while the remainder of those reviews are picked up by a review filter, he said.

The site had 108 million average monthly visitors in the three months ending June 30.

Businesses that are caught, say, buying fake reviews, are flagged on the website and users are notified of that when visiting that Yelp page.

Those situations are few and far between,” Whisenand said. “Our review filter is working day in and day out.”

Blyskal expressed some concerns that advertisers on Angie’s List are reportedly told they can get 12 times more profile views than companies that don’t buy ads. Angie’s List costs consumers $46 a year to use the service.

“When [companies] get two reviews and a B average or better, and there are no alerts about them, they can pay to advertise and must offer discount coupons that ‘position your business to rotate on page 1 of search results’,” Consumer Reports writes.

He is also concerned that the ability of A- and B-rated companies to be displayed at the top of the default search results skews outcomes.

Angie Hicks, co-founder and chief marketing officer of Angie’s List, said in a statement, “Angie’s List is built on a foundation of fairness and transparency. Everything at Angie’s List starts with the consumers.”

She explained companies’ A-F ratings are the average of the consumer reviews. Companies that with A-B ratings are eligible to advertise with Angie’s List, but they must offer a discount with that advertisement. If their grades fall below a B, we pull their advertising, she said.

“Over the years, our members have continuely told us that they want to see discounts from highly rated service companies first, so that is the default sort order,” she explained. “Members can change the default to various orders including, ratings, number of reviews, alphabetical, etc. We’re very transparent with our members on how advertising is displayed. We describe the sort order logic in several places on our site in particular on our search results page and also include an explanation in our magazine to our members each month.”

She also said the company sets itself apart with an outside audit of its data handling process every year.

“That audit includes an examination of whether companies that advertise are treated differently than those that do not,” she said. “The audits have always found Angie’s List reviews are a fair, impartial and trustworthy resource.”

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How The Internet Can Help You Stop Wasting Time On The Internet

September 18th, 2013 | No Comments | Posted in Lifestyle

computerWhen it comes to getting stuff done, it seems we’re all in search of assists from technology — “life hacks” (much to one writer’s chagrin) that lead to better, faster and more effortless production.

And while hack-centric tech tools can aid us in our goal of ultimate efficiency, technology is also the exact medium that slows us down. Here’s some proof and candor: I have checked Facebook three times as I write this, and I’m not even through with the second graph.

It’s not just at work where technology is polarizing. Take, for example, online yoga classes: They give you the freedom to squeeze in some “om’s” without the construct of a class schedule, but also make it easier to pick up the phone when it buzzes — taking you away from a practice that’s real purpose is to keep you in the moment. We are distracted — attempting dozens of things at once while never fully completing a single thing. And as a result, we’re frustrated, frazzled and utterly burned out.

Since the web and our favorite devices aren’t going anywhere anytime soon, we’ll have to develop some coping strategies to avoid the spread-too-thin phenomenon. To help, there are ways to use certain online tools to your advantage. Below are a couple of hacks, if you will, that can take your bad browsing habits and turn them into better ones.

Find yourself spending too much time on “nonsense” sites? Try Nanny for Google Chrome.
This extension for Google Chrome is your virtual babysitter. Nanny keeps your browsing habits in check by allowing you to block particular URLs at certain times of the day. You also have an option to set up time restrictions — you’ll let yourself peruse Buzzfeed (because it wouldn’t be fair to completely abstain from all the cuteness), but only for 60 minutes a day. Best of all, this babysitter doesn’t charge $10 an hour, nor will it riffle through your fridge — Nanny is completely free. (Don’t use Chrome? Try Anti-Social, a similar, $15 software you can use on other browsers).

Can’t keep yourself offline, even on the weekends? Try Mac Freedom (it’s compatible for both Windows and Mac).
If Nanny is your babysitter, Mac Freedom is your prison guard. As the app’s site puts it, “Freedom enforces freedom; you’ll need to reboot if you want to get back online while Freedom’s running.” The software locks you away from the internet for up to eight hours at a time, so you’ll have to go do something offline instead of binge-watching “Orange Is The New Black” on Netflix.

Have 600 tabs open on your browser, each one begging for your attention? Try “controlled multi-tab browsing.”
tabs
If your browser looks something like the image above, and it feels like you’re stuck playing an interminable game of leap frog with your tabs, this app is for you. The Google Chrome extension allows you to put a limit on the number of tabs you can have open in a window at one time. It’s a simple idea, but it will keep you from getting distracted and feeling overwhelmed. Plus, whatever you’re looking for won’t be buried in your tab-apocalypse.

Too much Internet to consume, but not enough hours in the (work) day? Try Pocket.
The internet is a playground — there’s just so much fun to be had. Pocket lets you save “articles, videos or pretty much anything” to read later, during your off hours. When your friend g-chats you that “must-read” Times’ op-ed and that list of 1,990 things from the 90s is calling your name, you needn’t be distracted from your actual work. Just click “Read later” and indulge on your downtime. This feature will help you cut down those tabs, too.

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