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Economics 101
The Best News Gets Treated Badly
For
more than a decade we have witnessed a trend of borrowing more and
saving less. Home equity lines, multiple credit cards, buy now
and pay later arrangements - all of these have been part of a
tremendous move toward increased consumption that finally seems a thing
of the past. We
all know the well-worn stories of over-leveraged consumers, businesses,
and banks. The financial crisis of the last two years is already
the stuff of legend, and rightfully so. But in some corners, the
great lessons of the past decade - that we should be saving more,
spending less, and borrowing less - is being seen as a negative.
The reason is that reporters seem to have finally realized that if we
do not borrow at the same levels as before, we cannot spend at the same
levels as before, and that will be a drag on the economy for years to
come. Welcome to the new reality.
The Federal Reserve just released the Consumer Credit
numbers for February, and they showed that consumers shrank their
credit outstanding by just over $11 billion, which is a 5.6% annual
rate of decline. The reasons cited - pessimism and caution - are
guesses of course, as no one knows what each consumer is thinking, but
they leave out one really big possibility - newfound frugality.
For
years, there have been discussions about what might occur once the baby
boomers moved from their greatest spending years to their greatest
saving years and how those changes would affect our national
economy. It is quite possible that the recent trend toward less
credit is not born out of some great dread of tomorrow, but instead is
the result of rational, well-reasoned decisions made on the part of
everyday consumers that their own lives are better served by saving
more, spending less, and borrowing less.
If this trend continues
it could cause our economic recovery to proceed much more slowly than
it otherwise would have, but it will also mean that the average
consumer will be less in debt. That seems like a great
reason to believe more in the average consumer than share in the
worries of the average reporter.
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Steps to Retirement Planning
A crystal ball and necessary evils top this month's steps to no-nonsense investing for your retirement.
"There
are two kinds of investors, be they large or small: those who don't
know where the market is headed, and those who don't know that they
don't know. Then again, there is a third type of investor - the
investment professional, who indeed knows that he or she doesn't know,
but whose livelihood depends upon appearing to know." (William
Bernstein, The Intelligent Asset Allocator) If financial
forecasters are unanimous that stocks, or bonds, or the dollar are
about to plummet, they almost certainly won't. The reason? Presumably,
these soothsayers (thus the crystal ball) and their clients have
already acted on their prediction, and it has already had its affect on
the market.
Another way to bet on a loser - keep your mortgage
for the sole purpose of a tax deduction. There may be other very
good reasons to maintain a mortgage in retirement, but the tax
deduction alone is not one of them. Consider that if you are
in the 25% tax bracket, your $1,000 of mortgage interest will get you
$250 in tax savings. Unfortunately, the other $750 still comes
out of your pocket.
And the necessary evil we all love to hate -
insurance! Insurance allows you to transfer a risk (on your
health, life, auto or home) that you can't afford to bear to the
insurer in exchange for a premium you can afford to bear. The key words
being premium you can afford to bear. Assess your
coverages every 3 years to determine that you don't pay for more
insurance than you really need. (FEGLI is a great example where
employees sign up for life insurance coverage when they are first
employed and end up never looking at their coverage again.)
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Last month's quiz asked who uttered the quote, "Know thine enemy as thyself."
The correct answer is Sun Tsu. The first to respond with the
correct answer was Andrea Gengler, Veterans Administration, Des Moines,
IA. Congratulations, Andrea and thanks to all who responded! |
Mother Nature and manmade disasters seem to have taken an
exceptionally large toll during the past decade. With major
earthquakes in Haiti and Chile, a volcano eruption in Iceland, and now
an oil rig explosion/leak in the Gulf of Mexico, 2010 has already had
more than its fair share of disasters.
Seven of the ten
costliest natural disasters on US soil have occurred since 2004.
Be the first to name the costliest disaster and win a prize.
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Contact Us
202 West 7th Street
Carroll, IA 51401
Phone: 866-792-6668 (toll free)
712-792-6400 (Local)
Fax 712-792-6670 |
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Alphabet Soup
NARFE - National Active and Retired Federal Employees Association
Although this organization is not technically one
of your benefits - it offers great opportunities for both employees who
are still working and those who are retired. What is NARFE and
what do they do? NARFE has nearly 350,000 members joined together to
preserve the economic security and well-being of federal employees both
while working and in retirement. They sponsor and support legislation
to protect your earned retirement benefits and send monthly updates in
a magazine format. In Congress, NARFE is your representative to
influence legislative decisions that affect your life. Their years of
experience on Capitol Hill and in federal agencies make them a
respected name with members of Congress. An example of this is the
legislation that passed last fall allowing FERS employees to use all or
a portion of their sick leave (depending on their retirement date) in
the computation of their annuity. There is currently a bill before
Congress which would allow retirees to contribute a portion of their
annual leave directly to the TSP at retirement. This would allow for
efficient tax planning by not having to add the lump sum annual leave
amount to their income for the year. NARFE has consistently lobbied for
equality on these and other issues to ensure that benefits are retained
for employees and retirees. An additional benefit NARFE
provides is acting as a resource to surviving spouses in helping to
navigate the maze of paperwork required after the death of a federal
employee/retiree. Local chapters provide this support, so it
puts a face to NARFE for the survivor. If you would like to learn more about your local chapter and joining NARFE, go to www.narfe.org. |
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Twice As Much
For the 17 years from 1965-1981, the top
individual marginal tax bracket paid by American taxpayers was 70%,
double the 35% top rate for 2010.
(source: Internal Revenue Service). |
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TSP Returns
April 2010
G Fund
April: .28%
YTD: 1.09%
F Fund
April: 1.09%
YTD: 2.90%
C Fund
April: 1.66%
YTD: 7.06%
S Fund
April: 5.30%
YTD: 15.21%
I Fund April: (2.37%)
YTD: (1.52%)
LIFECYCLE FUND RETURNS
L Income April: .51%
YTD: 2.23%
L 2010
April: .52%
YTD: 2.36%
L 2020
April: .79%
YTD: 4.07%
L 2030
April: .98%
YTD: 4.87%
L 2040
April: 1.10%
YTD: 5.44%
Returns courtesy of : |
On April 27, the Broadway show "Enron" opened at
the Broadhurst Theatre in New York City. At the time of its
bankruptcy filing in December 2001, Enron employees collectively had
62% of their 401(k) dollars invested in company stock. When the
firm collapsed, it was the largest bankruptcy filing ($63 billion) in
US history at the time - and there was no taxpayer "bailout." (source: Business Week) |
Brown Bag - Lunch 'n Learns
Want to learn more about tax strategies like those mentioned in the Steps to Retirement Planning column?
There are tactics that can help position your retirement accounts to
your advantage. Consider bringing one (or all!) of these brown bag
programs to your agency:
Taxes - 2010 and Beyond
Roth IRA's - To Convert or Not to
Convert - That Is the Question
Allocating Your TSP in Volatile Markets
Contact
my office to schedule your programs or to learn about our complete menu
of available topics. Call 866-792-6668 for more information. |
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Letter from the Editor
What's
your "number"? When I ask clients this question, most of them
will say an amount that they believe is enough to allow them to live in
a comfortable lifestyle for as long as they live.
The
next question is harder to answer. How did you come up with this
number? Some people will answer that they filled out a form in a
financial magazine, but for many people, we're now in the gut instinct
category. Without a plan that outlines your assets, reflects
retirement income and makes adjustments for inflation, taxes and
longevity, you may have a number - it just may not be the right
one. Creating a plan is not easy - but with an outline of the
right steps and a little guidance, it's not that hard, either.
Is
it time for you to invest some energy into refining your
"number"? Whether you are one month or ten years from retirement,
having a plan that reflects your goals, dreams and wishes is an
important component to making the transition to retirement a pleasant
one.
If
you would like to know more about determining your number, feel free to
call or email me for assistance. Phone (866)
792-6668; Email federal.info@sklenar.com
Cordially,
John Sklenar
CPA/PFS, CFP
Chartered Federal Employee Benefit Consultant
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