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Oops, I Did It Again

September was a tough month for the GOP presidential campaign, marked by a series of unfortunate utterances by Republican candidate Mitt Romney. The most damaging of all was an hour-long video of him speaking at a private fundraiser, which came on the heels of misspoken comments about recent foreign policy. 

 

You’ve probably heard the highlights in the news already, but if you’re interested in seeing the video in its entirety, you can view it (and a full transcription) at the links below.

 

[CLICK HERE to view “Full Secret Video of Private Romney Fundraiser” at MotherJones.com, September 18, 2012.]

 

[CLICK HERE to read “Full Transcript of the Mitt Romney Secret Video,” at MotherJones.com, September 19, 2012.]

 

Is It True About the 47 Percent?

Yes, apparently the statistic Romney quoted in the video is true: 46.4 percent of American households did not pay federal income taxes for the 2011 tax year. But as we’ve heard from various analysts since the release of the video, that number appears a lot less dramatic in context.

 

According to the Tax Policy Center of the Urban Institute and Brookings Institution (comprised of nationally recognized experts in tax, budget, and social policy who have served at the highest levels of government), nearly two-thirds of those households did have payroll taxes taken out of their paychecks, which is the tax used to fund entitlement programs such as Social Security and Medicare. Among the remaining 18.1 percent that did not pay any taxes–payroll or otherwise–just over 10 percent were elderly. 

 

[CLICK HERE to read “Mitt Romney’s 47 Percent: Doing the Math,” at the Harvard Business Review Blog Network, September 18, 2012.]

 

[CLICK HERE to view analysis of “Who Doesn’t Pay Federal Taxes?” at the Tax Policy Center, 2012.]

 

[CLICK HERE to read, “Half avoid taxes, get U.S. help, but many not poor,” at Associated Press, September 18, 2012.]

 

In a recent report from National Public Radio (NPR), congressional correspondent David Welna pointed out that in 2009, half a dozen of the nation’s 400 wealthiest households also paid no federal income taxes thanks to tax breaks for investment losses. Furthermore, he points out that the biggest reason why so many households pay no federal income tax is due to the earned-income tax credit (EIC)–a subsidy for low-wage workers–which was enacted by Congress in 1975 (during President Ford’s term). 

 

President Reagan further expanded the EIC as part of the 1986 Tax Reform Act, stating that “Millions of working poor will be dropped from the tax rolls altogether.” President Clinton also expanded the EIC during his administration, and then President George W. Bush initiated the child tax credit–which raised the percentage of Americans who paid no federal income tax to 36 percent by the end of his presidency.

 

[CLICK HERE to read/listen to the NPR report, “Why Some Are Exempt From Federal Income Taxes,” at National Public Radio, September 19, 2012.]

 

Perhaps less focus should be on Romney’s comments about the 47 percent of Americans not paying taxes and more on his point that people “should take personal responsibility and care for their lives.” While taxes are designed to help pay for programs like Social Security and Medicare, they were never designed to provide for 100 percent of a retiree’s income or health care expenses. That’s where the importance of independence–versus being “dependent on government”–comes into play.

 

And that’s where we can help. We can offer you strategies that may help cover a greater portion of your income and medical expenses in retirement, based on your specific needs and financial situation. Contact us to find out more.

 

 

The information and opinions contained herein are provided by third parties and have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by our firm. Content is provided for informational purposes only and is not a solicitation to buy or sell the products mentioned. The information is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation.

 

If you are unable to access any of the news articles and sources through the links provided in this text please contact us to request a copy of the desired reference. 

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The Fed Steps Up

Five million Americans have been out of work for more than six months. Less than half of the eight million jobs lost during the recession have been restored. In his press conference announcing the latest plan by the Federal Reserve to help improve the U.S. economy, Fed Chairman Ben Bernanke made it clear that the committee’s focus is to generate jobs in this country.

This latest effort by the Fed will buy $40 billion in mortgage-backed securities every month until it sees substantial improvement in the unemployment rate. 

 

[CLICK HERE to view the video, “Press Conference with Chairman of the FOMC, Ben S. Bernanke” at YouTube.com, September 13, 2012.]

 

[CLICK HERE to view an infographic on “How Quantitative Easing Works,” at The Wall Street Journal, September 14, 2012.]

 

A key point in the Fed’s statement was the open-ended nature of the bond purchases – for as long as necessary until there is evidence of “ongoing sustained improvement in the labor market.”  This a significant departure from earlier policies that specified the amount of bonds that would be purchased, and reinforces the committee’s pledge to do whatever it takes for as long as it takes to spur sustained growth in employment.

 

Note, however, that the Federal Reserve has limited tools in its tool chest to impact change in job numbers. In his own words Bernanke admitted, “I want to be clear; while I think we can make a meaningful and significant contribution to reducing this problem, we can’t solve it. We don’t have tools that are strong enough to solve the unemployment problem.”

 

Reactions

Much as Mario Draghi, President of the European Central Bank, announcement last July he would do “whatever it takes” to save the Euro, Bernanke’s words gave an initial positive boost to the market and surprised economists with the boldness of the Fed’s intended moves.

 

Michael Gapen of Barclays observed that, “These moves indicate the accommodation switch has been ‘turned on’ and the data have to tell the committee when to stop.” Joel Naroff of Naroff Economics commented that, “the Fed is admitting that its best bet to improve growth is by continuing to help this [housing] sector. By keeping mortgage rates down, the members are betting that housing starts will accelerate, creating more jobs and income.”

 

[CLICK HERE to read the article “Debt crisis: Mario Draghi pledges to do ‘whatever it takes’ to save euro,” at The Telegraph, July 26, 2012.]

[CLICK HERE to read “Economists React: “Bold Shift in Fed Policy,” at The Wall Street Journal, September 13, 2012.]

 

[CLICK HERE to read the article, “Stocks extend Fed rally,” September 14, 2012.]

 

Please feel free to reach out to us if you have questions about what the Fed’s latest round of QE means for you. We’re happy to look at your portfolio within the context of these moves and consider the best way to position your assets for the foreseeable future.

 

The information and opinions contained herein are provided by third parties and have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by our firm. Content is provided for informational purposes only and is not a solicitation to buy or sell the products mentioned. The information is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation.

If you are unable to access any of the news articles and sources through the links provided in this text please contact us to request a copy of the desired reference.

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Scraping Together Retirement Income

 

According to the Federal Reserve’s 2010 Survey of Consumer Finances released in June, the typical U.S. household between ages 55 and 64 held just over $42,000 in their tax-exempt (IRA, 401(k), etc.) retirement plans, and the average value of bank savings accounts dropped in half, to $18,000. That’s about $60,000 available for retirement which, when coupled with the maximum Social Security benefit, would last retirees with a current household income of $100,000 about one year and one month (based on an 80 percent replacement rate).

[CLICK HERE to read the bulletin, “Changes in U.S. Family Finances from 2007 to 2010: Evidence from the Survey of Consumer Finances,” at the Federal Reserve, June 2012.]

[CLICK HERE to read the report, “401(k) Plans in 2010: An Update from the SCF,” at the Center for Retirement Research at Boston College, June 2012.]

The Boston College’s Center for Retirement Research recently published a report revealing that a mere 42 percent of private sector workers in the U.S. had defined-benefit and/or defined-contribution plans at work in 2010. While more women now participate in employer plans than 30 years ago, recent analysis shows that participation is closely correlated to earnings. Among the top quintile of high earners, two-thirds of workers–both male and female–participate in plans, whereas only 11 percent of workers in the bottom quintile participate. Given the continued lag in earnings of women compared to men (in 2010, the median earnings of women working full-time were about $36,900, compared to $47,700 for men[1]); participation numbers among women also lag compared to men.

From 1998 to 2009, working women surpassed men in their likelihood of having an employer that offered a pension plan, but were less likely to be eligible for and participate in those plans. When you consider that women are more likely to become single (widowed or divorced) in old age, possess a higher life expectancy and on average earn less lifetime income than men, the risk of retirement poverty is significantly higher for women.

The United States Government Accountability Office recently published a report concerning the plight of women facing retirement, stating that although recent economic events have affected both men and women, the outcome has the potential to exacerbate older women’s financial insecurity.

[CLICK HERE to read the report, “The Pension Coverage Problem in the Private Sector,” at the Center for Retirement Research at Boston College, September 2012.]

[CLICK HERE to read the paper, “Retirement Security: Women Still Face Challenges,” at the United States Government Accountability Office, July 2012.]

Is it any wonder then that in a recent AP-GfK poll, the majority of respondents said they supported raising taxes and the retirement age in order to save Social Security benefits for future generations? Participants indicated they would rather pay more taxes than reduce the level of monthly benefits, which currently represents about 40 percent of retirees’ income, on average.

[CLICK HERE to read the article, “Narrow majority supports raising taxes, retirement age to save Social Security,” at AP-GfK, August 26, 2012.]

One of the biggest financial challenges in your life may be funding your own retirement–independent of the government or your employer. We can take a look at all of your assets, even sources you may not perceive as assets, and help you position them to provide retirement income. In the future, many Americans may be scraping together retirement income, but we’d like to help you secure it.

 

 

 

 

 

 

The information and opinions contained herein are provided by third parties and have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by our firm. Content is provided for informational purposes only and is not a solicitation to buy or sell the products mentioned. The information is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation.

 

 

 

 

 

If you are unable to access any of the news articles and sources through the links provided in this text please contact us to request a copy of the desired reference.

 

 

 [1] Carmen DeNavas-Walt, Bernadette D. Proctor, and Jessica C. Smith, “Income, Poverty, and Health Insurance Coverage in the United States: 2010″ Current Population Reports, Consumer Income, United States Census Bureau, P60-239 (September 2011).

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Great Recession Strikes Home

According to a new study by Prudential Financial, the majority of women today are financially responsible for providing their own and their families’ income. Among the 1,400 women surveyed, 53 percent are primary breadwinners, and 22 percent of women who are married or living with a partner report being the one who makes the most money. The research concludes that these recent findings are largely due to the impact of the Great Recession.

[CLICK HERE to read the  news release, “Women are primary breadwinners, whether they like it or not,” July 11, 2012.]

[CLICK HERE to read the report, “Financial Experience & Behaviors Among Women,” from Prudential Financial, July, 2012.]

Economic Partnership
The 2009 National Marriage Project report, “The State of Our Unions, found that women offer more risk-management capabilities when it comes to managing the household investment portfolio. The study revealed that while husbands are more focused on performance, women view investments as a way to help secure their family’s financial future.

The study also concluded that since the beginning of the nation’s economic downturn, millions of Americans have relied on their own marriages and families to weather this economic storm. “The recession reminds us that marriage is more than an emotional relationship; marriage is also an economic partnership and social safety net. There is nothing like the loss of a job, an imminent foreclosure, or a shrinking 401(k) to gain new appreciation for a wife’s job, a husband’s commitment to pay down debt, or the in-laws’ willingness to help out with childcare or a rent-free place to live,” according to one of the report’s authors.

[CLICK HERE to read the “The State of Our Unions: Marriage in America 2009,” at The National Marriage Project, December 2009.]

[CLICK HERE to read the article, “The Great Recession’s Silver Lining?” at thestateofourunions.org, December 2009.]

[CLICK HERE to read the article, “The Smart Money: She Saves, He Spends,” at thestateofourunions.org,  December 2009.]

Job Front
According to the Institute for Women’s Policy Research, in the last three years of the recovery, men have recaptured 46.2 percent of all the jobs they lost since the beginning of the recession. Women are about 10 percent behind, having gained back 38.7 percent of jobs lost. Many of the job losses for women came from the public sector, as they are more concentrated in Government than men. However, growth in non-government jobs in the health and education sectors–the largest industries for women’s employment–have helped their recovery numbers.

[CLICK HERE to read the article, “Women Pick Up The Pace On Jobs Gains,” at The Wall Street Journal, August 13, 2012.]

One of the key lessons we’ve learned throughout these recessionary times is how to buckle the belt when there is no other option. If your household has acquired a new income source in light of economic growth and recovery, consider maintaining those spending controls and assigning the new income stream to a disciplined investment or savings strategy. After all, the lessons we learn today can go a long way to securing our future tomorrow. Please contact us to discuss this learning opportunity further.

The information and opinions contained herein are provided by third parties and have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by our firm. Content is provided for informational purposes only and is not a solicitation to buy or sell the products mentioned. The information is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation.

If you are unable to access any of the news articles and sources through the links provided in this text please contact us to request a copy of the desired reference.

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A Health Care Plan – For You

A survey released in late July found that one in three doctors say they will quit practicing medicine in the next decade. But not because they’ll retire. Reasons given included declining reimbursement, unprofitable practices, and the high cost of doing business.

According to the report, “this confluence of economic and regulatory pressures is driving some physicians to early retirement and others out of the medical profession altogether. Plus, it’s influencing the emerging generation of talent to avoid the debt and risks inherent in becoming doctors.”

[CLICK HERE to read the article, “A Tough Time for Physicians: 2012 Medical Practice & Attitude Report,” at Jackson Healthcare, July 25, 2012.]

Well, that’s going to make things really difficult. The number of adults age 65 and older is projected to soar by more than 75 percent by 2030 – to nearly one in five U.S. residents.[1] We all know that the good health we tend to enjoy in younger years will likely deteriorate as we get older, so it’s easy to imagine demand for health care providers will increase exponentially during this timeframe. And in an era when demand will ramp up more than any other time in history, supply will be leaving the profession in droves – with reduced potential for replacement players.

Furthermore, when demand is high and supply is low, prices generally increase. Just to give you an idea of where they stand right now, the Society of Actuaries estimates a couple, both age 65, will need $230,000 to cover the cost of acute medical care and Medicare in their lifetimes, which doesn’t include the cost of long-term care insurance (that could cover some of these projected costs).[2]

[CLICK HERE to read the article, “Boomers Need Health-Care Costs Reality Check,” at FoxBusiness.com, August 16, 2012.]

[CLICK HERE to read the article, “Stern Advice – Managing medical costs in retirement,” at Reuters, August 8, 2011.]

[CLICK HERE to read the new release, “Federal report details health, economic status of older Americans,” at National Institutes of Health, August 16, 2012.]

We might be living long but, unfortunately, living longer doesn’t necessarily mean living healthier. In fact, the more active you’ve been in your younger years, the more likely you’ll need a joint replacement in old age. The less active you’ve been in your younger years, however, you may have more health issues overall.

Currently only about 25% of American employees have considered a plan for health care expenses in retirement.[3] Because medical expenses tend to increase the older you get, developing a separate plan to cover them is an important consideration. This requires estimating your health care needs and costs in retirement and determining if you should purchase additional health care coverage (Medigap insurance) to help preserve your personal assets and retirement income.

Feel free to contact us to talk about your personal health care plan in retirement. We’d like to help ensure it doesn’t conflict with your retirement income plan.

If you are unable to access any of the news articles and sources through the links provided in this text please contact us to request a copy of the desired reference.


[1] Institute of Medicine, “The Mental Health and Substance Use Workforce for Older Adults,” July 2012.

[2] Society of Actuaries, “Securing Health Insurance for the Retirement Journey,” 2012.

[3] Sun Life Financial Unretirement Survey; “Flying Blind: How Working Americans View Healthcare Costs in Retirement,” May 24, 2011.

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What “Recovery” Feels Like

What “Recovery” Feels Like

Today’s headlines are dominated by the claims, promises, accusations and trash talk of our noble presidential candidates. Each says they’re fighting for the future of middle-class Americans, a category of citizens for whom neither can admit to being a card-carrying member.

But who is the middle class, anyway? Recent research and survey trends have unleashed some interesting findings. For example, since 2000 the middle class has shrunk in size, from 61% of the adult population in 1971 to 51% in 2011. Not surprisingly, there were increases in the upper economic tier (from 14% to 20%) and lower tier (from 25% to 29%) during the same time frame.1

1[CLICK HERE to read the news release, “The Lost Decade of the Middle Class,” at Pew Research Center, August 22, 2012.]

[CLICK HERE to read the article, “Middle Class Exit ‘Lost Decade’ With Little Hope: Pew Report,” at The Huffington Post, August 22, 2012.]

Even though the Great Recession officially ended three years ago, the middle class isn’t really feeling much recovery in terms of its income – or home equity for that matter. Sixty-two percent say they had to reduce household spending in the past year due to money issues, whereas at the height of the recession in 2008, only 53% reported cutting back.1

According to data from the Federal Reserve’s Survey of Consumer Finances, American’s median net worth fell 28% from 2001 to 2010, erasing two decades of gains. From 2007 to 2010 alone, the value of middle income family assets fell by 19%.1

 

Mature Middle Class

From 2001 to 2011, adults ages 65 and older fared best, or so it would seem. Their incomes are higher now than in 2001, but you could also attribute this to the fact that many 65+ folks are continuing to work, whereas before they could retire. 

And speaking of earning income, mature workers do not appear to be enjoying the increases their younger peers are getting. According to a new report from Sentier Research, the typical household income for people age 55 to 64 years old is almost 10% less in today’s dollars than it was three years ago – when the recovery officially began. Actually, in almost every demographic group nationwide, Americans are earning less today on average than they did in June 2009, despite our third year in recovery.

Perhaps we should reconsider what “recovery” really means.

[CLICK HERE to read the article, “Big Income Losses for Those Near Retirement,” at The New York Times, August 23, 2012.]
 

Who’s Getting Paid More?

A recent AOH Hewitt survey found that companies are spending less on base pay increases for all workers, opting instead to reward high-performing workers with larger bonuses. According to an AON Hewitt spokesperson, “It is unlikely that salary increases will reach pre-recession levels of 4% or higher any time soon.” Aon Hewitt projects base pay increases of 3% in 2013 for executives, salaried exempt and nonexempt workers.

However, some areas of the country are more likely to pay higher increases than the national average, including Denver, Austin, Dallas/Fort Worth, Detroit, San Diego, Houston and Kansas City. Cities expected to pay lower-than-average increases in 2013 include San Francisco, Chicago and Minneapolis/St. Paul.

[CLICK HERE to read the news release, “Aon Hewitt Survey Shows Marginal Rise in Salary Increases in 2012; Spending on Performance-Based Awards Remains Strong,” at Aon Hewitt, August 13, 2012.]

[CLICK HERE to read the Employment Cost Index news release for June; U.S. Bureau of Labor Statistics, July 31, 2012.]

As our “recovery” continues to amble along, you may feel more confident about the future by putting your savings on track for risk-managed growth opportunity – coupled with retirement income security – for the future. We’ve got strategies that can help you do that. Please give us a call.

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Making Homeownership Viable Again

There’s been discussion in recent years about renting being a better investment than buying a home. Analysts have emphasized that homeowners need to take the perspective that owning a home is more about quality of life than the road to riches. But that’s like saying don’t invest in stocks when prices are low, which is a very short-term view. We’ve been taught to buy low and sell high, and that means even when the real estate market takes a turn for the worse, we need to steel ourselves, hang in there and trust in the long-term return.

 

It appears the residential market is poised to reward us for that long-term view. Maybe it didn’t make sense to sell your house when prices were dropping, but buying was and continues to be a very good way to build equity for the future. And with mortgage rates still at record lows, homebuyers today can position themselves for some very high returns on their investment in the future.

 

[CLICK HERE to read the article, “Rent vs. Buy: What the Standard Indices Aren’t Telling You,” at Zillow Real Estate Research, August 1, 2012.]

 

Jobs to Increase Prices

While improvement on the unemployment front is slow and generally disappointing, there is some comfort in knowing that lower home prices are more influenced by this economic factor rather than pure demographics. With a massive population of baby boomers in or on the cusp of retirement, there’s been concern that overbuilding over the last 30 years to accommodate this population increase would result in mass vacancies as the generation diminishes. However, the recession has helped curbed housing starts and the formation of new households – creating pent-up demand that may well explode when jobs return.

 

Young college graduates have been forced to move back in with mom and dad, mid-career layoffs have turned elderly parents into landlords, and a proliferation of fixed-income seniors have moved in with their adult children. This constriction of new and previous household formations has lowered demand for housing, thus reducing prices further. Traditionally, the average number of households fluctuated based on demographics, but now we can take heart in knowing that the current excess supply of vacant homes is at least partially due to pent-up demand, and we won’t have to wait for demographics to catch up with supply.

 

[CLICK HERE to read the commentary, “Pent-up Housing Demand: The Household Formations That Didn’t Happen – Yet,” at HousingEconomics.com, February 2, 2011.]

 

New Rules Proposed for “Investment Statements”

You might call it your mortgage bill, but the Consumer Financial Protection Bureau (CFPB) wants your monthly mortgage statement to look and act more like an investment statement – so you can monitor and manage this asset more closely. A few rules recently proposed by the CFPB include:

 

·     Servicers would have to send regular bills to homeowners each billing cycle that spell out payments by principal, interest, fees and escrow; the amount of and due date of the next payment; and warnings about fees.

·     Servicers would have to alert homeowners with adjustable rate mortgages that their interest rates are about to change as early as 7 months before the changes kick in.

·     Servicers would have to credit homeowners’ mortgage accounts the day payment is received.

 

[CLICK HERE to read the article, “New rules aimed at helping homeowners,” at CNNMoney, August 10, 2012.]

 

Home ownership has long been considered not only a good investment, but also the key to building significant wealth over a lifetime. As you approach retirement, there are many ways you can position this investment asset to help secure your lifestyle. Please give us a call if you’d like to discuss these options.

 

 

 

If you are unable to access any of the news articles and sources through the links provided in this text please contact us to request a copy of the desired reference.

 

The information and opinions contained herein are provided by third parties and have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by our firm. Content is provided for informational purposes only and is not a solicitation to buy or sell the products mentioned. The information is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation.

 

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Midyear Recap

The commentaries are in – July brought with it a host of analysis about how the economy is doing so far this year.

 

According to Fidelity Investments, “The U.S. remains in a mid-cycle expansion and the corporate sector remains solid, but improvement has slowed, and global and policy risks dampened the overall outlook for riskier assets.” Its 2nd quarter report provides a market summary with analysis on the economy, policy risks, securities markets both domestic and abroad, and asset allocation themes in light of this being an election year.

 

[CLICK HERE to read, “Quarterly Market Update,” at Fidelity Investments, Second Quarter, 2012.]

 

If you want to see how the outcome of the presidential and congressional elections may impact the market and the economy, check out an in-depth perspective from LPL Financial Research. Among other observations, the firm’s 2012 Mid-Year Outlook states that, “We believe the impact of congressional elections may be more meaningful than the presidential one this year.”

 

[CLICK HERE to read the commentary, “Campaign 2012: What the Elections Hold for Investors,” at LPL Financial, Second Quarter, 2012.]

 

In its third quarter overview, UBS acknowledges that the “re-flaring of the eurozone sovereign debt crisis, continued policy uncertainty in the US, and the lagged effects of the monetary tightening cycle within the emerging markets are chiefly responsible for the current economic slowdown.” However, it cites the following reasons for optimism:

 

·         Lower energy prices are likely to start turning into a supportive force for growth.

·         Emerging markets policies are now accommodative; policymakers have greater latitude to ease policy; and further stimulus is likely in the months ahead.

·         The recovery in U.S. housing prices and the rebound in both existing home sales and housing starts suggest that residential real estate has shifted from being a headwind to a tailwind.

 

[CLICK HERE to read the commentary, “Investment Strategy Guide: I know what you did last summer,” from UBS Wealth Management Research, Third Quarter, 2012.]

 

Speaking of residential real estate, Zillow.com recently published a report emphatically stating that the US housing market has finally turned a corner. The Zillow Home Value Forecast estimates that 67 of the 156 markets it covers will experience an increase in home values over the next 12 months.

 

The report notes that, overall, national home values are back to January 2004 levels, having fallen 22.9% since their peak in May of 2007.

 

[CLICK HERE to read the article, “Home values rise for the first time in 5 years,” at CNNMoney, July 24, 2012.]

 

[CLICK HERE to read the commentary, “Housing Market Turns Corner; U.S. Home Values Post First Annual Increase in Nearly Five Years,” at Zillow Real Estate Research, July 23, 2012.]

 

[CLICK HERE to read the commentary, “U.S. housing market lays new foundation,” at The Globe and Mail, July 24, 2012.]

 

Despite lingering high unemployment and the risks associated with Europe’s financial crisis, there is little news in recent mid-year reports that would indicate the U.S. economy has altered from its slow but gradual course to recovery. Now might be a good time to take a look at your current situation to see if there are strategic moves you can make to help position your assets for longer-term growth – or protect them from a similar economic setback in the future. As always, give us a call if you’d like to discuss your situation.

 

 

If you are unable to access any of the news articles and sources through the links provided above, please contact us to request a copy of the desired reference.

The information and opinions contained herein are provided by third parties and have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by our firm. Content is provided for informational purposes only and is not a solicitation to buy or sell the products mentioned. The information is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation.

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Banks: Too Big to Break Up?

After the Great Depression, Congress passed the Banking Act of 1933, which included banking reforms such as the Glass-Steagall Act (named for its Congressional sponsors, Senator Carter Glass (D) of Virginia and Representative Henry B. Steagall (D) of Alabama). That Act was designed to limit the activities and affiliations commercial banks could engage in with securities and securities firms. In 1999, those restrictions were repealed via the Gramm-Leach-Bliley Act under President Clinton.

And here we are today. Since the subprime mortgage crisis that launched the country into economic recession, debates abound regarding the wisdom of limiting the size and security-based risks in which banks are allowed to engage.

 

Jumping into the fray just recently is former Citibank CEO Sandy Weil, whose resume includes acquiring insurance companies, retail brokerages, and investment banks and merging them into the behemoth empire known as Citigroup. He claims to have been instrumental in lobbying for the repeal of the Glass-Steagall Act. To the surprise of the banking industry, Weil went on CNBC’s “Squawk Box” recently to call for the return of Glass-Steagall-like reforms:

 

“What we should probably do is go and split up investment banking from banking, have banks be deposit takers, have banks make commercial loans and real estate loans, have banks do something that’s not going to risk the taxpayer dollars, that’s not too big to fail.”

 

[CLICK HERE to watch video of Sandy Weill, “Wall Street Legend Sandy Weill: Break Up Big Banks,” at CNBC.com, July 25, 2012.]

 

[CLICK HERE to read the article, “Insight: Banks bristle at breakup call from Sandy Weill,” at Reuters, July 27, 2012.]

 

Good Service Isn’t Profitable
Since receiving bailout money from the federal government during the height of the “Great Recession,” banks have built up strong balance sheets and appear to be fully recovered. In fact, they appear to now be so strong that customer experience isn’t exactly a priority.

Time quotes an industry analyst who observed, “There’s no evidence in the US banking system that offering a labor-intensive personalized service is successful in terms of letting the banking institutions survive. It’s very costly with virtually no benefit.”

 

With the electronic age, technology enables banks to offer faster, more convenient – but less personal – service. And it saves them money, since ATM machines don’t take sick days, ask for raises, or need health insurance.

 

Electronic ties also make it difficult for customers to switch banks thanks to direct deposit, automatic draft payments, and elaborate bill pay systems. A new Consumer’s Union survey reveals that while nearly one in every five customers has considered changing banks in the last year, nearly half of them don’t because it’s too much trouble.

 

[CLICK HERE to read the article, “Uh Oh: Bad Customer Service Is Good For Bank,” at Time, July 26, 2012.]

 

[CLICK HERE to read the news release, “Survey Highlights Top Impediments to Switching and Reforms That Would Make Consumers More Likely To Move Their Money,” at ConsumersUnion.com, July 24, 2012.]

 

The progress of banks and their relationships to consumers, Wall Street and politicians will continue to rule headlines – at least until the economy has officially turned the corner. If you’d like to discuss how developments in this industry may impact your financial picture, please contact us.


The information and opinions contained herein are provided by third parties and have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by our firm. Content is provided for informational purposes only and is not a solicitation to buy or sell the products mentioned. The information is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation.   

 

If you are unable to access any of the news articles and sources through the links provided in this text please contact us to request a copy of the desired reference.

 

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Does Student Loan Debt Make You Smart?

It used to be that garden-variety wisdom behooved you to go to college to make something of yourself. These days, with around $1 trillion in outstanding student loan balances nationwide ($150 billion in private student loan debt), many are questioning that wisdom.

 

According to finaid.org, the average college student’s debt is more than $18,000, but many carry loans well over $50,000. The biggest shame of it all is that in this economic environment, young adults are coming out of college and having to work the same sort of temporary or transitional jobs they’ve worked for years – food and beverage, retail, lifeguarding, valets, etc. They’re lucky if they can find an unpaid internship to gain “real world” work experience while paying the bills by bussing tables. Many have little opportunity to make a dent in student loan debt, and each year the competition for jobs grows denser.

 

[CLICK HERE to read the blog post, “College Loans: A Punitive System?” at Boston College, Center for Retirement Research, June 5, 2012.]

[CLICK HERE to read a report from the Consumer Financial Protection Bureau and the US Department of Education titled, “Private Student
Loans,”at ConsumerFinance.gov, July 20, 2012.

[CLICK HERE to read the article, “Private student loan debt reaches $150 billion,” at Yahoo Finance, July 20, 2012.]

 

Subprime Student Loans

Much like the American dream of owning your own home, the student loan industry relaxed qualifying criteria and actively marketed and approved loans to people who did not have a credit history for paying back loans. Exploiting parental claims that you can’t get a good job without an education, lenders used Asset-Backed Securities (ABS) to finance student loans because they were more profitable, giving them incentive to increase loan volumes regardless of creditworthiness.

[CLICK HERE to read the article, “How the Student Private Loan Industry Resembles the Subprime Mortgage Market,” at ThinkProgress.com, July 20, 2012.]

Government Intervention

Similar to the subprime crisis, where private lenders may have faltered, the federal government has taken measures to try to provide relief. In recent years, the government has launched the income-based repayment program to allow debt-laden graduates to repay federal student loans based on their level of income. After a certain time period, any remaining balance would be forgiven (note that forgiven balances may be considered income on which taxes are owed).

 

Furthermore, Congress recently extended the current 3.4% interest rate on federally subsidized student loans just prior to the July 1 expiration date, when the rate was scheduled to double. The extension is only for one year, however, so this issue is likely to rear its ugly head in the first two quarters of 2013. 

[CLICK HERE to read the article, “Uncle Sam’s Income-Based Student Loan Repayment Plan,” at Nightly Business Report, July 19, 2012.

[CLICK HERE to read the article, “Congress extends low student loan rates,” at CNNMoney.com, June 29, 2012.

Not a Generational Issue

If you think student loan debt is a problem just for the young, think again. Nearly one-third of the total student loan debt is carried by people over age 40 – still paying down loans from their college years. On top of that statistic, loans to parents to fund their kids’ education is among the fastest-growing of the government’s education loan programs. Imagine – paying your child’s college student loans while still paying down your own.

 

Many middle-aged adults went back to school after losing their jobs during the latest economic crisis in an effort to beef up their resumes in light of ageism and the other challenges that come with seeking a new job mid-career. Taking on more student loan debt while unemployed (or under-employed) and losing value in your home equity is equally daunting.

[CLICK HERE to read the article, “Student Debt Hits The Middle-Aged,” at The Wall Street Journal, July 17, 2012.]

 

The best way to tackle student loan debt is to plan early and save/invest regularly. But even if you’ve waited late to start a plan for financial health, you may have assets that can be positioned to help pay for college. Don’t hesitate to call us to review your situation and discuss strategies.

 

   

If you are unable to access any of the news articles and sources through the links provided in this text please contact us to request a copy of the desired reference.