The Certainty of Uncertainty

December 28, 2011

In the past, one thing most working Americans could rely on was an affluent retirement. You worked hard all your life, saved prudently, and as a reward – with the help of your employer and the government – you and your spouse received a healthy income for the rest of your lives. Unfortunately, in the 21st century most Americans cannot rely on those certainties – retiring in this century means the only thing you can be certain of is uncertainty.

For example, take your health. Will you stay healthy in the future or have to deal with an injury or illness? You can hope for the best but should plan for the alternative. No one knows what kind of health they will have during their retirement. And just because you are entitled to Medicare, it doesn’t mean you won’t end up paying out of pocket for care and medications. On top of that, Medicare as we know it today may be very different in years to come. The key to health care in retirement is being able to afford medical coverage and remain physically independent as long as possible.  Whatever happens, you need to plan for health care uncertainties. That could be with extra insurance, it might be through extra savings or just by signing up to the right program.  Whatever it is, you need to be ready. 

Taxes are another uncertainty. Current talk of deficits and the national debt, in the midst of shifting political winds, means that taxes will likely change over the coming years. Your being in retirement is no guarantee that you will be immune to this uncertainty.

Depending on how much of your retirement income you take out and when, you may still face substantial tax bills through your retirement. Also, if your retirement income is large enough, you can be taxed on social security income. So just because you stop working, it doesn’t mean you stop being affected by tax hikes and cuts.  You should include tax uncertainties on your list of retirement considerations or you might have some nasty surprises during tax time in your retirement years.

We’ve just been through one of the worst recessions in our country’s history. It was a recession few of us could have predicted and one that made many people reassess what they can rely on in terms of investment and growth. We don’t know what the stock market is going to do over the next 5, 30 or even 50 years – but, whatever the market does, you need to be certain that your retirement income can sustain your lifestyle. 

That means diversifying your investments and having a long-term plan. By planning ahead you can be prepared for either a bull or a bear market. And, you can protect your assets against uncertainty. 

Be ready for the future
The problem is, too many people are putting off their retirement plans until tomorrow. And, no one has a crystal ball. To protect yourself from the uncertainties that may face all of us in retirement, you should plan sooner rather than later.

When asked about financial priorities in today’s changing environment, people are almost seven times as likely to say their core goal is “achieving financial peace of mind” versus “accumulating as much wealth as possible.” And that’s obvious, because the confidence that comes with knowing that you are prepared for the uncertainties of the future is, as the commercial says, priceless.

 Wealth Enhancement Group

Market Response to the Federal Reserve Comments

September 26, 2011

On Wednesday, September 21, the Federal Reserve made several announcements following its September meeting, which on the surface appeared to be positive, but the markets globally have reacted negatively.

The Committee intends, by the end of June 2012, to purchase $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less. This program should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative.

Information received since the Federal Open Market Committee met in August indicates that economic growth remains slow. Recent indicators point to continuing weakness in overall labor market conditions, and the unemployment rate remains elevated.

The markets appear to have focused on the pessimistic view of slow growth and have turned attention to the continuing uncertainty of the outcome of the European debt crisis and the impact on the U.S. and world economies. This uncertainty will continue the pattern of risk-on risk-off trading that has contributed to the recent volatility.

President Obama and Fed Chairman Bernanke Give Speeches on the Economy

September 13, 2011

On Thursday, September 8, both President Obama and Fed Chairman Bernanke gave speeches on the economy.

Most of what Bernanke said, he’s said before. After all, American business is sitting on huge amounts of cash that it isn’t investing. It isn’t borrowing to grow either. The Fed has done everything non-inflationary that it can to send interest rates to historic lows to encourage spending. Spending isn’t happening, so what more can the Fed chairman say?

Something interesting.

Bernanke said he thought Americans were overly pessimistic about the economy. Given the numbers on wages, debt, loan rates and housing prices, consumers should be spending more, creating demand and growing the economy. Instead, they’re doing exactly what business is doing: not spending. The cycle of pessimism feeds on itself, stifling demand, which in turn stifles growth.

Perhaps the main cause of that pessimism is unemployment and the lack of job growth. That’s where President Obama’s speech comes in. The American Jobs Act that he proposed has $240 billion in employee payroll tax cuts through 2012, tax cuts for small businesses, and a small business tax holiday for hiring new employees. It has $140 billion for modernizing schools and for repairing roads and bridges. It has $35 billion for saving teacher jobs and hiring new teachers.

Moody’s Analytics’ chief economist Mark Zandi says the president’s jobs package would likely create 1.9 million payroll jobs, grow the economy by 2%, and cut unemployment by 1%.

Is it big enough? Maybe. It needs to go beyond staving off another recession to jumpstart self-sustaining growth for the economy. Is it apportioned right? Maybe. Direct spending is historically more effective than tax cuts, but tax cuts work.

And can it be passed by the most bitterly divided Congress since the 1850s? We’ll see.

James Copenhaver, Director of Investments

Vacation Properties and Income – Part 2

September 14, 2009

Another way for retirees to generate income from a vacation home is to sell it. By using the federal capital gains exclusion in conjunction with the sale of your primary residence, you can potentially realize tax-free income. Here’s how it works. The basic capital gains exclusion rules state that you must have owned and used the home as your primary residence for at least two years out of the five-year period ending on the date of the sale. If you are married, the full $500,000 exclusion ($250,000 for single homeowners) is available as long as one or both of you satisfies the ownership test (two years) and you both satisfy the use test (primary residence).

Vacation Properties and Income – Part 1

September 10, 2009

If you have a vacation home, you’re already aware of the enjoyment it provides and the benefits it can offer at tax time. But you may not be aware of how vacation property can be used to generate income in retirement or how it can play into an estate plan. In fact, vacation properties offer retirees a number of different options in managing their finances and estate.
Vacation property may be used to generate income in several different ways. The first, and most obvious, is renting it. The IRS allows you to deduct mortgage interest on your primary residence and one additional property up to a limit of $1 million in combined mortgage debt for mortgages taken out after 1987. Current tax rules also allow you to rent out a second home for up to 14 days per year without having to report the rent as income. If you rent for more than 14 days, the home is considered investment property, and rent must be reported as income. Converting the property to an investment property, however, allows you to deduct rental expenses, such as insurance and utilities, if you have a net profit on the property (deductions are limited if you report a loss). You can still use an income-producing property for personal use while maintaining your tax advantages — but only for the greater of 14 days or 10 percent of the total days it is rented. Maintenance days do not count as personal-use days, but use by in-laws or other part-owners does, even if rent is charged.

Simple Truths

September 8, 2009

As a financial advising firm, one of the simple truths we have learned is that relationships are the single greatest influence on how people use their money and plan for the future. When people talk about their hopes and dreams, they talk about the people they love. Their future, the life they wish to live, is always full of the people most important to them. They don’t talk first about dollars and cents, Dow averages, or bond yields. They talk about a spouse, a parent, a child. When imagining their financial futures, even those without family often focus on others, such as employees, friends, faith communities, and charities.

Keeping Your Emotions in Check…

September 3, 2009

In times like these, with the economy in a tailspin, and the stock market in the tank, investing requires an extra dose of patience, perseverance and perspective.
It takes patience to ride out the bear market, perseverance to continue to invest even through a difficult economy, and perspective to see the long-term picture and realize that recessions and bear markets are just part of the natural economic cycle. Slumping economies and bear markets of the past have always turned around — and there is no reason to believe that this time will be any different.