US Economic outlook update - a mixed picture

Mixed signals from US economic reports are out this week. Here this week's report from Steve Peasley, president of KPP Financial. Steve believes that the economy is still very strong even without worrying about inflation. Well, at least for the moment.

Good economic numbers came out from the housing sector. New constructions were down but if you take out  the apartments part, it's definitely up... Single family homes construction was up. We just need to always keep in mind that these are backward looking economic trends.

What's more important is the growing numbers of new construction permits. Permits are always the leading economic indicator.

But what's concerning is that not all of the Federal Reserve governors agreed about the QE3. QE 3 is an 80-Billion per month pay off to banks (i.e. securities a month). Quantitative easing was supposed to be applied until the unemployment reaches a certain level and this move created a surprise for the marets and markets don't like surprises...

As always, thanks Steve for your expert analysis and reporting.

Financial Planning for Newly-Single Boomers

by Casey Dowd

This scenario is very familiar to boomers: a couple, married 30-plus years, with three great kids, maybe some grandkids, living in a beautiful home and nearing retirement call it quits and head to divorce court.

Baby boomers turned empty-nesters are increasingly filing for divorce as they find themselves no longer happy with the partner they have spent so many years with.

New research by sociologists Susan Brown and I-Fen Lin of Bowling Green State University find the divorce rate among people 50 and over continues to increase.  For new baby-boomer empty nesters, the divorce rate has doubled over the past two decades with 1 in 4 now getting divorced.

Getting divorced later in life can impact boomers’ financial situations in a very complex manner especially when it comes to dividing retirement accounts.

According to Howard Hook, a certified financial planner with EKS Associates in Princeton, N.J., when it comes to aging and finances, the cards are often stacked against singles -especially newly-solitaire boomers. 

 

Hook offered the following advice to suddenly-single boomers on how they can best protect their assets and navigate their finances when in or approaching retirement:

Boomer: What disadvantages would suddenly-single baby boomers encounter in terms of taxes and deductions? 

Hook: Suddenly-single baby boomer will be paying a higher percentage of tax on their income compared to married boomers.

Here’s an example:

Two households both earning $150,000. Household A consists of a single baby boomer and Household B consists of married baby boomers. Household A will pay 19% more federal income tax than Household B.  

The tax code is written such that more of the taxable income for a household consisting of married taxpayer’s is taxed at lower rates than the taxable income in a single household’s taxable income. 

Another disadvantage for singles is the potential loss of certain tax deductions that may have been taken while married. For example, someone who received the primary residence as part of a divorce settlement would continue to take a deduction for property taxes while the person not receiving the home as part of the settlement would not be able to take the deduction unless they bought another home. 

Boomer: What retirement strategies do newly-divorced boomers not have that are available to married people? 

Hook: The ability to stretch pension benefits over more than one life span. 

Companies that offer a pension plan for their employees many times do not allow an un-married person the option of paying the pension over “joint lives”, an option available to a married employee with their spouse. This can be harmful for a recently-divorced person who may be financially supporting a sibling or an older parent who wants reassurance the relative will be taken care of if they pass away.

Singles also lose the ability to maximize the amount of money saved in a qualified retirement account such as a 401(k) or 403(b).The maximum contribution for someone over age 50 to a 401(k) plan is $23,000 (in 2013). A married couple where both spouses are eligible for a 401(k)plan can contribute twice the amount or $46,000 in total.   

Boomer: Why do you find that newly single boomers are largely ignored by financial professionals and how can they get the financial assistance they need? 

Hook: There is a misconception that certain planning strategies do not apply to single people.

For example, one of the reasons for someone to buy life insurance is to provide for a surviving spouse’s needs. There may be an assumption that without a spouse, the single boomer may not need life insurance. This may have been true many years ago, but today, many people find themselves caring for older family members or domestic partners that would need the life insurance. 

One of the most common estate planning strategies to reduce estate taxes is for spouses to create trusts for each other’s benefits in order to maximize the amount of assets that can pass to their beneficiaries free of Federal and / or state estate tax. For a boomer with no spouse, there may be a presumption that there is no need for this trust. However, there are other, non-tax reasons to create trusts (creditor protection, control of timing of distribution of assets after death are two), that make the inclusion of a trust for a single person as important as for a married person.

Boomer: What happens with joint credit cards and installment loans, how can single boomers best deal with these financial burdens? 

Hook: Much depends on the divorce agreement as to who is responsible to pay these debts. Proper planning before the divorce is finalized is crucial to dealing effectively with these issues. 

If the single boomer is saddled with paying debt, care should be taken as to how to pay off the debt. If current income is not sufficient to do so, then the assets received in the divorce become important. Non-liquid assets (such as a home) or retirement assets are not particularly good assets to use to pay off debt. Paying off debt by refinancing a home may make sense, but may not be possible depending upon the ability to qualify for a mortgage. Taking distributions from retirement assets is tax inefficient as taxes need to be paid on those distributions, causing more money to come out of the account to pay the tax than needs to be taken to pay down the debt.

If assuming debt is part of the agreement, then a portion of the assets received in the divorce should be liquid assets not located in retirement accounts.    

Boomer: What should suddenly-single boomers take into financial consideration before selling the home they have jointly owned for 20-plus years?

Hook: When selling a home, boomers need to take into consideration the costs of a new home and the taxes that will be incurred upon selling the existing home.

Someone who has not purchased (or rented) a home for more than 20 years  may not realize the increased costs associated with the initial purchase of a new home (closing costs, repairs and maintenance) as well as the ongoing costs of a new home (property taxes, utilities, etc.)

Income taxes on the sale of the home are also important and tricky. The tax code allows the first $500,000 of gain on the sale of a home considered to have been the primary residence of a married couple in two of the previous five years. This exclusion is only $250,000 for a single taxpayer. Therefore, if the boomer who is about to become single intends to sell the home, it may make sense to do so in a tax year that they can still file as married with their spouse. If this is the case, the single boomer receives the proceeds from the sale. The amount of the exclusion is dependent upon the marital status of the single boomer at the end of the tax year in which the home is sold and not the marital status at the date of sale. Therefore, it may be necessary to delay the final divorce agreement until after Dec. 31 of the year of sale to take advantage of the $500,000 exclusion.

Read more: http://www.foxbusiness.com/personal-finance/2013/02/14/financial-planning-for-newly-single-boomers/#ixzz2L4M5eWDR

Generation Debt Turns Out to be Baby Boomers

by Roman Shteyn

Baby boomers are the first generation in American history to be entering retirement saddled with debt, including unpaid balances on credit cards.

The financial crisis in 2008 that sent the economy into a recession crippled many baby boomers’ retirement accounts, forcing many to stay in the workforce or significantly alter their retirement lifestyle plans. Now, the oldest of the boomer generation are receiving Social Security checks alongside notices from bill collectors.

According to the report The Plastic Safety Net by public policy organization Demos, Millennial’s (those born after 1980) average credit card debt is $2,982. For those 65+, the average credit card debt is $9,283—and that amount could continue to rise as they age since they have fallen into the trap of financing their lives on credit cards.

The brutal financial reality for baby boomers is that they have entered their supposed golden years during a period when it has become increasingly difficult to build, protect, and grow wealth. Traditionally the highest level of compensation comes from working in your 50s and 60s. These decades used to be a time to increase 401(k) balances and settle into a financially-secure retirement. Instead, if baby boomers were fortunate enough to be employed in a recessionary economy, they often found they were earning less than they had in comparable jobs or assignments before the downturn. If they were unable to find work after being laid off, they may have opted to take Social Security early, which reduced their lifetime payment.

Financial Losses and Burdens

The financial crisis that brought down the stock and housing market was a major blow to baby boomer’s retirement savings. To add to their financial strain, nearly 60% of baby boomers provide financial support to adult children, according to a YEAR report from the National Center for Public Policy.

Many boomers have accepted carrying debt into retirement. A 2012 poll by CIBC bank found that 80% of the generation is not anxious about carrying debt or the amount of it. In addition, CIBC found less concern among the respondents of getting their finances in order to be able to pass on an inheritance to the next generation.

Recent reports have focused heavily on the growing amount of student loan and credit card debt students are graduating college with, but will they learn from their elders and work to shed the debt before entering retirement? After all, they certainly can’t count on an inheritance from boomer-aged parents and grandparent to help them pay down the debt.

Roman Shteyn is co-founder of Credit-Land.com. He frequently writes on credit-related topics.


Read more: http://www.foxbusiness.com/personal-finance/2012/11/20/generation-debt-turns-out-to-be-baby-boomers/#ixzz2CrdSyT71