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Taking Taxes Into Account When Saving & Investing

August 22nd, 2014 | No Comments | Posted in Financial News

It isn’t always top of mind, but it should be.

shutterstock_130170590How many of us save and invest with an eye on tax implications? Not that many of us, according to a recent survey from Russell Investments (the global asset manager overseeing the Russell 2000). In the opening quarter of 2014, Russell polled financial services professionals and asked them how many of their clients had inquired about tax-sensitive investment strategies. Just 35% of the polled financial professionals reported clients wanting information about them, and just 18% said their clients proactively wanted to discuss the matter.1

Good financial professionals aren’t shy about bringing this up, of course. In the Russell survey, 75% of respondents said that they made tax-managed investments available to their clients.1

When is the ideal time to address tax matters?The end of a year can prompt many investors to think about tax issues. Investors’ biggest concerns may include any sudden changes to tax law. Congress often saves such changes for the eleventh hour. Sometimes they present opportunities, other times unwelcome surprises.

The problem is that your time frame can be pretty short once December rolls around. You can’t always pull off that year-end charitable donation, gift of appreciated securities, or extra retirement plan contribution; sometimes your financial situation or sheer logistics get in the way. It is better to think about these things in July or January, or simply year-round.

While thinking about the tax implications of your investments year-round may seem like a chore, it may save you some money. Your financial services professional can help you stay aware of the tax ramifications of certain financial moves.

Think about taxes as you contribute to your retirement accounts. Do you contribute to a qualified retirement plan at work? In doing so, you can lower your taxable income (and your yearly tax liability). Why? Those contributions are made with pre-tax dollars. In 2014, you can contribute up to $17,500 to a 401(k) or 403(b) account or the federal government’s Thrift Savings Plan. If you are 50 or older this year, you can put in up to $23,000 into these accounts. The same is true for most 457 plans. This can reduce your taxable income and lower your tax bill.2,4

Think about where you want to live when you retire. Certain states have high personal income tax rates affecting wealthy households, and others don’t levy state income tax at all. If you are wealthy and want to retire in a state with higher rates, a Roth IRA may start to look pretty good versus a traditional IRA. Withdrawals from a Roth IRA aren’t taxed (assuming the Roth IRA owner follows IRS rules), because contributions to a Roth are made with after-tax dollars. Distributions you take from a traditional IRA in retirement will be taxed.2

What capital gains tax rate will you face on a particular investment? In 2013, the long-term capital gains tax rate became 20% for high earners, up from 15%. On top of that, the Affordable Care Act Surtax of 3.8% effectively took the long-term capital gains tax rate to 23.8% for investors earning more than $200,000.2,3

Greater capital gains taxes can actually be levied in some cases. Take the case of real estate depreciation. If you sell real property that you have depreciated, part of your gain will be taxed at 25%. The long-term capital gains tax rate for collectibles is 28%. Own any qualified small business stock? If you have owned it for over five years, you typically can exclude 50% of any gains from income, but the other 50% will be taxed at 28%. Lastly, if you sell an asset you’ve held for less than a year, the money you realize from that sale will be taxed at the short-term rate (i.e., regular income), which could be as high as 39.6%.2,3

Are you deducting all you can? The mortgage interest deduction is not always noticed by taxpayers. If a home loan exceeds $1.1 million, interest above that amount may not qualify for a deduction. Itemizing can be a pain, but may bring you more tax savings than you anticipate.2

A tax-sensitive investing approach is always specific to the individual. Therefore, any strategyneeds to start with an in-depth discussion with your tax or financial professional.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. 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.

1 – russell.com/us/newsroom/press-releases/2014/russell-survey-advisors-say-tax-aware-investment-strategies-not-top-of-mind.page? [4/29/14]
2 – foxbusiness.com/personal-finance/2014/08/07/investments-and-tax-planning-go-hand-in-hand/ [8/7/14]
3 – bankrate.com/finance/money-guides/capital-gains-tax-rates-1.aspx [3/27/14]
4 – irs.gov/uac/IRS-Announces-2014-Pension-Plan-Limitations;-Taxpayers-May-Contribute-up-to-$17,500-to-their-401%28k%29-plans-in-2014 [11/4/13]

The Retirement Mindgame

August 22nd, 2014 | No Comments | Posted in Financial News

shutterstock_137226314Your outlook may influence your financial outcome.

What kind of retirement do you think you’ll have? An outstanding one? A depressing one? What if it all starts with your outlook?Qualitatively speaking, what if the success or failure of your retirement begins with your perception of retirement?

A whole field of study has emerged on the psychology of saving, spending and investing: behavioral finance. Since retirement saving is a behavior (and since other behaviors influence it), it is worth considering ways to adjust behavior and presumptions to encourage a better retirement.

Delayed gratification or instant gratification? Many people close to retirement age would take the latter over the former. Is that a good choice? Often, it isn’t. Financially speaking, retiring earlier has its drawbacks and may lead you into the next phase of your life with less income and savings.

If you don’t love what you do for a living, you may see only the downside of working longer rather than the potential boost it could provide to your retirement planning (i.e., claiming Social Security later, tapping retirement account balances later and letting them compound more). If you see work as a daily set of unfulfilling tasks and retirement as an endless Saturday, Saturday will win out and your mindset will lead you to retire earlier with less money.

On the other hand, if you change your outlook to associate working longer with retiring more comfortably, you may leave work later with a bigger retirement nest egg – and who wouldn’t want that?

If you don’t earmark 66 or 70 as your retirement year, you can become that much more susceptible to retiring as soon as possible. You’re 62, you can get Social Security; who cares if you get less money than you get at 66 or 70, it’s available now!

Resist that temptation if you can. While some retirees claim Social Security at age 62 out of necessity, others do out of inclination, perhaps not realizing that inflation pressures and long term care costs may render that a poor decision in the long run.

The good news is that Americans are waiting longer to claim Social Security than they once did. Increased longevity may be a factor in that trend, but the findings are encouraging nonetheless. The number of men claiming Social Security at age 62 increased 2.3% from 2007-09 to 35.8%, and the number of women claiming Social Security at age 62 increased 2.6% in that span to 38.9%. Still, these percentages fell short of those a generation before. From 1986-97, roughly half of all women claimed Social Security when they turned 62 and nearly half the men did; since 1997, the percentages have never approached those levels.1,2

Setting a target age for retirement – say, 65, 66, or even 70 – before you turn 60 can help mentally encourage you to keep working to that age. Providing your health and employment hold up and you can work longer, patience can lead you to have more Social Security income rather than less.

Take a step back from your own experience. For some perspective on what your retirement might be like, consider the lives of others. You undoubtedly know some retirees; think about how their retirements have gone. Who planned well and who didn’t? What happened that was unexpected? Financial professionals and other consultants to retirees can also share input, as they have seen numerous retirements unfold.

Reduce your debt. Rather than assume new consumer debts that advertisers encourage us to take on commensurate with salary and career growth, pay down your debts as best you can with the outlook that you are leaving yourself more money for the future (or for unexpected situations).

Save and invest consistently. See if you can increase your savings rate en route to retirement. Don’t look at it as stripping money out of your present. Look at it as paying yourself first, and investing for the comfort of your retirement.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. 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.

1 – ssa.gov/retirementpolicy/research/early-claiming.html [4/13]
2 – fool.com/retirement/general/2014/06/07/social-security-what-percent-of-americans-claim-be.aspx [6/7/14]

 

Couples Retiring on the Same Page

August 22nd, 2014 | No Comments | Posted in Financial News

Agreeing about what you want from retirement is crucial

shutterstock_128111117What does a good retirement look like to you? Does it resemble the retirement that your spouse or partner has in mind? It is at least roughly similar?

The Social Security Commission currently projects an average retirement of 19 years for a man and 21 years for a woman (assuming retirement at age 65). So sharing the same vision of retirement (or at least respecting the difference in each other’s visions) seems crucial to retirement happiness.1

What kind of retirement does your spouse or partner imagine? During years of working, parenting and making ends meet, many couples never really get around to talking about what retirement should look like. If spouses or partners have quite different attitudes about money or dreams that don’t align, that conversation may be deferred for years. Even if they are great communicators, assumptions about what the other wants for the future may prove inaccurate.

Are couples discussing retirement, or not? It depends on who you ask – or more precisely, what poll you reference.

A 2013 survey of 5,400 U.S. households by Hearts & Wallets (a research firm studying retirement money management trends) found that just 38% of couples plan for retirement together. The fourth Couples Retirement Study conducted by Fidelity Investments (released this February) offered similar results. In that study, 38% of the working couples polled cited some disagreement on what kind of lifestyle they would retire to, 32% disagreed on how much they would need to work in retirement, and 38% hadn’t planned to manage retirement health care costs.2,3

In contrast, Capital One ShareBuilder surveyed 1,008 employed adults this winter and found that on average, couples discuss retirement 14 times a year. (There was no word on the depth or length of those conversations, however.)4

Be sure to talk about what you want for the future. A few simple questions can get the conversation going, and you might even want to chat about it over a meal or coffee in a relaxing setting. Dreaming and planning together, even on the most basic level, gives you a chance to reacquaint yourselves with your financial needs, goals and personalities.

To start, ask each other what you see yourselves doing in retirement – individually as well as together. Is the way you are saving and investing conducive to those dreams?

Think about whether you are making the most of your retirement savings potential. Could you save more? Do you need to? Are you both contributing to tax-advantaged retirement accounts? Are you comfortable with the amount of risk you are assuming?

If your significant other is handling the household finances (and the meetings with financial professionals about a retirement strategy), are you prepared to take over in case of an emergency? When one half of a couple is the “hub” for money matters and investment decisions, the other spouse or partner needs to at least have an understanding of them. If the unexpected occurs, you will want that knowledge.

Speaking of knowledge, you should also both know who the beneficiaries are for your IRAs, workplace retirement accounts, investment accounts, and life insurance policies, and you both need to know where the relevant paperwork is located.

A shared vision of retirement is great, and respect for individual variations on it is just as vital. A conversation about how you see retirement today can give you that much more input to plan for tomorrow.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. 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.

1 – forbes.com/sites/jamiehopkins/2014/02/03/planning-for-an-uncertain-life-expectancy-in-retirement/ [2/3/14]
2 – heartsandwallets.com/till-death-or-retirement-or-retirement-do-us-part/news/2013/02/ [2/13]
3 – shrm.org/hrdisciplines/benefits/articles/pages/retirement-couples-disagree.aspx [2/7/14]
4 – usatoday.com/story/money/personalfinance/2014/03/16/retirement-planning-couples-fight/6368967/ [3/16/14]

August 2014 – Monthly Economic Update

August 22nd, 2014 | No Comments | Posted in Monthly Economic Update

August-MonthlyEconomicUpdate

4 Tips for Protecting Your Password

August 22nd, 2014 | No Comments | Posted in Lifestyle

It’s time to fess up: you use the same password for many – if not all – of your online accounts. Between email, social media accounts and web shopping sites like Amazon (AMZN), it’s hard to keep track of all those passwords. But it’s more important than ever to create unique passwords for every site that requires one – especially if you don’t want to be a victim of hacking. Last week, news broke that a Russian hacking ring stole more than 1 billion usernames and passwords and 500 million email addresses – purportedly the largest theft in the history of the Internet. Mat Honan, a senior writer at WIRED magazine, has written extensively about how to protect online identities after hackers nearly erased his digital life by simply retrieving his AppleID login-in credentials in 2012. Honan shared four simple tips for safeguarding your online accounts:

Use a password manager

There are several password managers to choose from but Honan prefers the 1Password app. A password manager, which can be accessed on all devices, not only stores a user’s passwords but will also help generate “strong” passwords that can be used for future accounts. A password manager also points out passwords that are repetitive or easy to guess – both of which are big no-no’s. And Honan says users should not be alarmed if their password manager gets into the wrong hands – “good password managers keep your info encrypted and someone would have to be very sophisticated to find your keychain, get access to your password keychain, and decrypt it in a way that’s usable,” he says. (A digital keychain, for non-techies, is a built-in password manager).

Perform a password audit

“People reuse passwords and that’s the thing that kills you,” warns Honan. Stop using your pet’s or child’s name for all your passwords immediately — repetition presents the biggest security risk.

Search your email

A hacker may already have access to your email accounts but is waiting to ruin your life. Some hackers will dig through personal messages to find password notification emails from sites, explains Honan, and won’t make any immediate moves. Anytime you change or update a password for a site an email is usually automatically generated. Delete those emails immediately, says Honan. Doing so “also hides tracks of the accounts you have that someone may be interested in,” Honan adds.

Wall off critical accounts

Hackers hate the two-step authentication process and users should request it for every account if possible. Most banks already offer this to online users and it provides a sophisticated way to thwart online pilfering because a user must pass two identification tests. A prompt will appear on screen when a user logs in to a strange, or unrecognized, device.

Most importantly, Honan recommends that all passwords should “contain long strings of letters, numbers, and symbols.”

“You don’t have to be a big target to be a target,” he says. “It’s pretty easy to practice good password hygiene.”

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Americans Are Too Afraid And Stressed To Take Days Off From Work

August 22nd, 2014 | No Comments | Posted in Lifestyle

stressAmerican workers are too scared to go on vacation.

About 40 percent of us don’t plan on using all of our paid time off this year, according to a new survey released Tuesday by the U.S. Travel Association and GfK, a market research firm. The survey polled 1,303 workers, including 235 senior business leaders.

The two most common reasons survey respondents cited for not taking a break: They dread the pile of work awaiting them when they return, and no one else can do what they do at the office. These people suffer from what the researchers called a “martyr” complex, believing that they’re the only ones who can do their jobs.

Most telling: More than 20 percent of workers said one of the main reasons they aren’t taking all of their vacation days is because they don’t want to appear replaceable.

“Fundamentally what’s going on there is fear,” said Michael Leiter, a psychology professor at Acadia University who studies people’s relationship with their work, but wasn’t involved with the new research. “People are afraid if they’re not present and they’re not continually churning stuff out that bad things are going to happen.”

Why workers aren’t taking vacation days, according to the survey:

chart

The share of American workers taking vacation is at historic lows. In the 1970s, about 80 percent of workers took a weeklong vacation every year, according to a recent analysis from Vox. Now, that share has dropped to a little bit more than half, Vox found.

Compounding workers’ fear of taking time off is the “perception we have based on corporate culture,” that being away from work means we’re bad employees, according to Chris Moessner, vice president of public affairs at GfK.

The declining popularity of vacation has wide-ranging effects not just on workers, but also on their employers and indeed the overall economy. Studies have found that taking fewer vacations is correlated with increased risk of heart disease in both men and women. Other research has shown that workers who take vacations — and even smaller breaks like naps or walks — are more productive when they return.

“If you keep pushing yourself and you keep becoming exhausted, you’re going to become more distant and less caring,” Leiter said.

That’s a major issue for companies looking to get as much as possible out of their employees, particularly when many jobs require workers to show up with the capacity to contribute intellectually and creatively.

Scott Johnson and his wife, who work in property management in New Hampshire, have taken just two vacations in the past five years. Both times, they said, they’ve returned early and subsequently worked several 12- to 14-hour days to “straighten everything out.” The primary reason they don’t use their allotted two weeks off, Johnson said, is because he likes his job and doesn’t want to lose it.

The Johnsons drove far out of cell phone range this summer to Maine on a camping trip, aiming to escape work’s demands. Yet three days into their break, they stumbled into some Wi-Fi in the main office of the campground where they were staying — and saw an urgent email from the office. They went back to work.

“I’m 50 years old, my wife’s 49, career changes right now can be a little bit rugged,” said Johnson, who has worked for the company for about seven years. “We feel sort of trapped, we’re very frustrated. We’re trading vacation for a sense of security, but it’s fragile at best.”

Companies and bosses don’t do much to encourage workers to take time off, even if it could make them more productive to come back refreshed after a few days away. Two-thirds of employees said their company says nothing, sends mixed messages or actually discourages staffers from using paid time off, the survey found.

Employees described those types of corporate cultures even as 95 percent of senior business leaders polled for the survey said they think using paid time off is important. Still, the bosses in the study appeared to be setting a bad example for what it means to get away: Nearly half of bosses surveyed said they respond to emails during time off, and almost 30 percent said they take calls during vacation.

“There’s this sense that the companies don’t really talk much about taking [time off],” Moessner said. “Employees are hoping that senior business leaders start the conversation for them.”

Leiter said the risk of burnout is real, and companies should take note. This vacation aversion is a North American phenomenon, he added. The U.S. is the only “advanced” economy that doesn’t require companies to give paid vacation days.

The study found that one way to push workers to take all of their time off is to implement a “use it or lose it” policy, which means that vacation days don’t roll over from year to year.

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The U.S. Cities That Get The Most And Least Sleep

August 22nd, 2014 | No Comments | Posted in Lifestyle

sleep

New York may fancy itself the city that never sleeps, but the numbers tell another story.

According to new data, New Yorkers snooze for just six hours and 47 minutes a night, on average — but a handful of other urban areas across the U.S. fare even poorer. The average night’s sleep in Los Angeles lasts six hours and 41 minutes, and in Las Vegas, just six hours and 32 minutes. The U.S. city claiming the most shut-eye? Orlando, with six hours and 56 minutes, just shy of the lower end of the seven to nine hours recommended for most adults.

Orlando also falls just short of Melbourne, Australia, which logged the most sleep in the new dataset with six hours and 58 minutes. Tokyo is home to the shortest sleepers, with the average night’s snooze lasting just five hours and 44 minutes.

The data, collected from wearers of the Jawbone Up activity tracker in more than 40 cities around the world, is vast, but easily explorable in an interactive graphic on Jawbone’s blog. In each U.S. city included, data was pooled from more than 10,000 Jawbone Up users, while international samples included at least 5,000 users.

While it’s certainly a restricted sample of the population — the device carries a $150 price tag after all, The Wall Street Journal points out — the data does paint an interesting picture of the way different cities lend themselves to sleep (or in some cases, how they definitely don’t).

Check out how your city stacks up in the graphic below, then head over to the Jawbone blog for more.

graph

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Report: Raising Today’s Child Tops $245K

August 22nd, 2014 | No Comments | Posted in Lifestyle

CostofChildrenA child born in 2013 will cost a middle-income American family an average of $245,340 until he or she becomes an adult, with families living in the Northeast taking on a greater burden, according to a report out today. Those costs—food, housing, childcare, and education—rose 1.8% over the previous year, the Agriculture Department’s new “Expenditures on Children and Families” report said. As in the past, families in the urban Northeast will spend more than families in the urban South and rural parts of the US, or roughly $282,480. When adjusting for projected inflation, the report found that a child born last year could cost a middle-income family an average of about $304,480. Housing costs remain the greatest child-rearing expense, as they did when the reports started in the 1960s, although current-day costs like childcare were negligible back then. For middle-income families, the USDA found, housing expenses made up roughly 30% of the total cost of raising a child. Child care and education were the second-largest expenses, at 18%, followed by food at 16%. Expenses per child decrease when a family has more children, the report found, as families with three or more children spend 22% less per child than families with two children. That’s because more children share bedrooms, clothing, and toys, and food can be purchased in larger, bulk quantities.

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