RMR Wealth Management Blog

This Is The Best Illustration of History's Bull And Bear Markets We've Seen Yet - posted by Brian Mayer, RMR Wealth Management, LLC

RMR Wealth Management - Wednesday, January 07, 2015

(originally written by Sam Ro)


The S&P 500 is up a whopping 212% from its March 2009 low of 666.

That means this bull market has been humming for a very long 68 months, which seems like a long time.

But by historical standards, the length and strength of this bull run isn't that spectacular.

Some folks have been tweeting this awesome chart from Morningstar's Jerry Kerns. The blue illustrates past bull markets' durations and returns (total and annualized). The red illustrates the bear markets. (Note: this was published in May.)

This chart does a fantastic job communicating a few important things. For instance, there's a lot more blue than red, a unique way of reminding investors that stocks have spent more time going up than down.

We particularly love what's illustrated by the y-axis. It's the multiple by which the stock market will go up or down from the beginning of each bull and bear market, respectively.

As you can see, the amount by which the stock market can fall is limited to 100%. Indeed, market crashes are scary, but you usually lose less than 100% of your investment.

However, the amount by which it can go up is unlimited. Indeed, this is why shorting the market can be a very scary process. It's also a reminder that you can make more than 100% of your initial investment if you're long.

How Not to Leave Your 401(k) Money On The Table: New Year's Tips - posted by Brian Mayer, RMR Wealth Management, LLC

RMR Wealth Management - Tuesday, January 06, 2015

(originally written by John Wasik)


Although I think that 401(k)s are flawed vehicles, for most Americans they are the only long-term savings vehicle they have.

It’s far too easy to leave money on the table in these plans. Here’s what you should be thinking about as the year begins:

* Contribute As Much As You Can. Remember that you can leave money on the table two ways: The most important is failing to take advantage of a company match. So grab the free money.

The second mistake is not taking advantage of tax savings. Remember you don’t pay federal taxes on the money you contribute to your 401(k). It reduces your federal liability.

You can contribute up to $18,000.

* Don’t Leave Your “over 50″ Bonus on the Table. Age has its benefits. If you’re 50 or older, you can chip in another $5,500 into your 401(k) this year.

* Watch out for minimum distributions. If you’re 70 1/2 or older, the IRS makes you take “required minimum” distributions out of your IRA. If you don’t take the money out, you could face a 50-percent penalty.

* Don’t Forget Your IRA. The limit is $5,500 for individual retirement accounts with another $1,000 as a “catch-up” contribution for those over 50. Deductions for these contributions, however, get a tad tricky. This is how US News explains it:

“Workers who have a retirement account at work can claim a tax deduction for making a traditional IRA contribution until their modified adjusted gross income is between $61,000 and $71,000 for individuals and $98,000 to $118,000 for couples in 2015, up $1,000 and $2,000, respectively, from 2014.

Spouses without a workplace retirement plan who are married to someone with a 401(k) can claim the IRA contribution tax deduction until their income is between $183,000 and $193,000 in 2015. “

* You May Qualify for a Saver’s Credit. If you’re within a certain income range, the government will give you a tax break for saving. It’s called the “saver’s credit.”

“Workers who save in a 401(k) or IRA may be eligible for the saver’s credit if their adjusted gross income (after deductions) is less than $30,500 for singles, $45,750 for heads of household and $61,000 for married couples in 2015.

These limits are between $500 and $1,000 higher than in 2014. This valuable tax credit is worth 50 percent, 20 percent or 10 percent of your 401(k) or IRA contributions up to $2,000 ($4,000 for couples), with the biggest credit going to savers with the lowest incomes. The maximum possible saver’s credit is worth $1,000 for individuals and $2,000 for couples.”

Don’t wait until the end of the year to make savings decisions. Make it part of your planning today.

The Shale Revolution Is Changing How We Think About Oil And The Dollar - posted by Brian Mayer, RMR Wealth Management, LLC

RMR Wealth Management - Thursday, October 09, 2014

(article originally written by Elena Holodny)


Historically, there's been a pretty consistent correlation between oil prices and the US dollar.

When the dollar strengthened, oil prices would fall — and vice versa.

For the longest time, this relationship has been explained by the huge flow of US oil imports.

However, a new report by Goldman Sachs's Jeffrey Currie says that rationale has broken down in the wake of the American shale revolution.

"In 2008 ... the US was importing on a net basis nearly 12 million [barrels per day] of oil and products," Currie writes. "Owing to shale technology, today that number is now less than 5 million b/d. And subtracting out Canada and Mexico, the number drops to 2.4 million b/d. In other words, net imports are over 60% lower than in 2008."

This has "significantly reduced the correlation between commodities and the US dollar," he writes.



Back in the day...

In the past, Currie writes, investors believed that the "primary mechanism for the correlation" between oil prices and the dollar was the large US petroleum current account deficit.

"From the early 2000's to the global financial crisis, increasing oil imports saw a widening US current account deficit, which put depreciation pressure on the dollar (appreciation pressure on oil producers currencies), which in turn put further widening pressure on the current account deficit (for any given volume of imports), causing additional dollar weakness," Currie writes.

By 2008, oil reached $147 per barrel and the US dollar was at its weakest point versus the Euro at 1.6. At the time, the US was importing on a net basis approximately 12 million barrels per day of oil and products.


And then there was the shale revolution...


Today, the number of imports has dropped to around 5 million. If you take out Canada and Mexico, that number falls further to 2.4 million — a stark difference from 2008's 12 million.

Overall, oil imports are down more than 60% since 2008.

Imports have dropped because the US is now using hydraulic fracturing to extract oil from its massive shale basins, creating more supply.

And it's during this same 2008 - 2014 time period that there's been a huge reduction in correlation between oil prices and the US dollar, according to Currie.

"Along with the post-crisis financial market normalization, [the drop in oil imports] has dramatically reduced the correlation between oil and the USD, to around 0% (i.e. uncorrelated) today from historical highs near 60% in 2008/2009," Currie writes.

Thus, according to this analysis, although oil prices have recently dropped as the dollar has surged, one trend doesn't explain the other.

Wall Street Declares The Great Profit Margin Boom Is Finally Over - posted by Brian Mayer, RMR Wealth Management, LLC

RMR Wealth Management - Wednesday, September 03, 2014

(originally written by Myles Udland)


During the post-financial crisis bull market, corporations have seen profit margins expand as companies cut costs by laying off workers and getting more productivity out of the employees that remain.

But recent data have painted a somewhat conflicting picture, and it looks like by some measures profit margins might be getting slimmer, or "rolling over."

Following the financial crisis, companies of all sizes saw margins expand. But of late, smaller companies haven't continued to enjoy record margins, and while larger companies are still seeing margins hold up, as seen in this chart by UBS.

Second quarter GDP data showed that after-tax corporate profit hit a new record high. But following the second GDP estimate released on August 28, The Wall Street Journal's Justin Lahart highlighted a sometimes overlooked adjustment in the profit margin data.

The "record" after-tax corporate profits exclude two adjustments — one that measures the change in the value of inventory and another that measures depreciation of plants and equipment — and were these items included, corporate profits as a percent of GDP would be 10% lower than a year ago.

And though the adjusted profits are still near record highs, corporates have clearly seen some decline in profit.

This chart from FRED shows how the unadjusted and adjusted measure of corporate profits have diverged in the last year.

Some economists on Wall Street have also noted this divergence, and when you look "under the hood" of corporate balance sheets, profit margins might be getting squeezed for the first time since the financial crisis.

In a recent note to clients, Sean Darby, chief global equity strategist at Jefferies, said, "Glancing at U.S. nationwide operating margins suggests that margins did indeed peak through 1Q and 2Q of 2014."

Darby noted three factors that contributed to this contraction: increased capital expenditures, share buybacks, and higher input costs. Darby adds that while the "high degree of U.S. sector oligopolization," among other factors, will keep costs constrained, "the best of the restructuring and cost cutting is over."

This chart from Darby shows how multiple expansion for the S&P 500 coincided with with an increase in profit margins, which have recently pulled back.

Dean Maki at Barclays said the catalyst for the squeeze in corporate profit margins is straightforward: labor costs are rising faster than output prices. The broader implications of labor costs rising faster than prices can sometimes be ominous, but Maki writes that, "While sliding profits often lead to recessions, there is nothing that says this is inevitable."

This chart from Barclays shows how labor costs have outpaced prices this year.

Maki expects the decline in corporate profits to put pressure on companies to raise prices, which the Fed likely welcomes, given that inflation has been running below is 2% target this year.

In her speech at Jackson Hole last month, Fed Chair Janet Yellen said there are still pockets of weakness, or "slack," in the labor market. And in an optimistic reading, the increase in wages highlighted by Maki could indicate the start of a "virtuous cycle" in the labor market, where employees gain leverage and are able to command higher wages. Or at least, this is how the Fed would want to see this play out.

At Capital Economics, John Higgins also sees profit margins falling in the face of a strengthening labor market, but like Maki, Higgins does not see this fall coming as a collapse that sends the market tumbling.

"The structural forces (e.g. globalization) that have put significant downward pressure on labor's share of income since the turn of the century are unlikely to disappear any time soon," Higgins writes. "So the after-tax profit share is unlikely to collapse and trigger the sort of major correction in equity prices that bears anticipate."

The "significant downward pressure" Higgins references is something that Business Insider's Henry Blodget has argued is the result of ever-greedier corporate leaders extracting profit by suppressing wages, creating, "a country of a few million overlords and 300+ million serfs."

And when you look at this chart showing how employee compensation as a percent of GDP has fallen, it's easy to see part of what the inequality argument is driving at.

It's also worth noting that companies in the S&P 500 enjoyed record profit margins in the second quarter.

In a recent note to clients, Goldman Sachs's David Kostin wrote that he sees profit margins for the S&P 500 remaining near 9%, while consensus estimates are for margins to expand to 10% by the end of next year.

And while the S&P 500 is among the most-referenced stock indexes, and is often considered the "benchmark" index for U.S. equities, it still excludes many thousands of smaller public — not to mention all private companies — possibly painting a misleading picture of the state of corporate earnings.

The S&P 500 is market cap weighted, meaning the largest companies make up the largest percentage of the index. Currently, that means Apple is the largest company in the S&P 500; in its most recent quarter, Apple's gross margin was 39.4%. 

Many have called the current bull market and economic recovery a "balance sheet recovery" that has seen companies repair balance sheets by, again, cutting costs, and engaging in financial engineering to boost earnings and stock prices.

This behavior has fed the ever-growing profit margins gains.

But if this trend is faltering, and companies start investing in their actual businesses rather than just their financial statements, then maybe we can drop "balance sheet" from the word "recovery."


The Spanish 10-Year Yield Just Fell Below The US 10-Year Yield - Here's What That Means - posted by Brian Mayer, RMR Wealth Management, LLC

RMR Wealth Management - Monday, June 09, 2014

(originally written by Joe Weisenthal)


This is something that would have been unfathomable a year ago, or even 6 months ago really.

The Spanish 10-year bond is now trading with a lower yield than US bonds. That means at 10-years, Spain can now borrow money more cheaply than the US can.

Jamie McGeever has the chart which shows the historical spread between 10-year Spanish bonds and US ones.

The chart's a little blurry, but you can see that in 2012, at one point, Spanish bonds were trading for over 600 basis points higher than US ones (meaning that if the US 10-year was at 2.5%, then the equivalent Spanish one was at 8.5%). This was in the throes of the Eurozone debt crisis, when it looked like peripheral Eurozone countries might default or leave the Eurozone, causing their debt to be denominated into weaker home currencies.

But since those tough days, several things have happened.

One is that the Eurozone vowed to implicitly backstop government debt, which took away the risk of default basically.

Meanwhile, the Eurozone economy has sputtered along, and inflation has dropped to its lowest levels since the crisis, which puts downward pressure on yields. And now just last week, the ECB has taken further steps to reduce interest, causing a further push into peripheral debt.

Now it's important to note what this doesn't mean: It doesn't mean that the market deems the US to be riskier than Spain. US credit default swaps (hedges against default) remain much tighter for the US.

In fact, while Spain has come a long way for the dark days, it's gotten to the point where plunging borrowing costs are actually a negative sign as they are an artifact of slow growth and deflation. So while this is a major milestone and moment for Spain, it's not necessarily all good.

The Bond Market's Nemesis Is Making A Comeback - posted by Brian Mayer, RMR Wealth Management, LLC

RMR Wealth Management - Thursday, May 29, 2014

(originally written by Anthony Valeri)


Inflation—one of bond investors’ chief enemies—may be making a resurgence. The rate of inflation remains low, but market awareness about a possible bottom is increasing. This week the Federal Reserve’s (Fed) preferred measure of inflation—core personal consumption expenditures (PCE)—is expected to increase to 1.4% for April 2014 after a 1.2% annualized rate in March.

Inflation is an important risk to monitor in bond investing. Since most bond interest payments are fixed over the life of the bond, rising inflation can erode the value of those payments and lead to lower bond prices.

The PCE will likely follow the recent increase in the widely followed core Consumer Price Index (CPI), which rose to a greater-than-expected 1.8% in April 2014 after an above-forecast increase in March. Core CPI has accelerated in recent months with the three-month change equating to a 2.3% annualized rate of inflation [Figure 1]. Prices at the producer level, often watched for signs of “pipeline” inflation pressures, have increased as well. Core finished goods prices as measured by the Producer Price Index (PPI) bottomed in late 2013 and have moved steadily higher since.

Core CPI has accelerated in recent months with the three-month change equating to a 2.3% annualized rate of inflation.

Several factors point to prices firming up further (for more insights see the Weekly Market Commentary: The Big Bang Theory: Inflating the Stock Market, 4/21/14):

•Global economic growth. Second quarter 2014 economic growth in the United States is expected to bounce back from a weak first quarter and is oon pace to expand at a 3.5% rate, according to the Bloomberg consensus forecast, based on a rebound in consumption and industrial production following a snowier and colder winter that depressed economic activity. Overseas, China’s Purchasing Managers’ Index (PMI)—an important gauge of manufacturing activity in China—showed signs of stabilization after a year of deceleration.

•Housing rents. Housing purchases have slowed due to higher interest rates, housing price gains, and still-tight residential mortgage lending standards. But housing rents, a key driver of core CPI, have steadily increased since late 2013 and may likely continue to exert upward pressure on core CPI over the remainder of 2014. Housing rents comprise roughly 25% of core CPI and favorable year-over-year comparisons may boost core CPI.

•Job growth. The three-month moving average of monthly private payroll gains is 225,000, the highest since November 2013. Although job growth remains sluggish compared with prior recoveries, continued improvement may lead to price pressures over time.

Measures of inflation expectations in the bond market have also increased. The breakeven inflation rates implied by Treasury Inflation-Protected Securities (TIPS) are near one-year highs [Figure 2]. In April 2014, the five-year TIPS auction witnessed very strong demand, and demand was again robust at last week’s 10-year TIPS auction. Higher implied inflation rates indicate investors are requiring greater inflation protection. Since the beginning of May 2014, the yield differential between intermediate- and long- term Treasuries has increased, leading to a steeper yield curve, which often reflects greater, longer-term inflation risks.

Still Modest

To be sure, the increases in inflation expectations and in the broad price indexes, such as the CPI, are still modest by historical comparison. The 10- year TIPS yield suggests that CPI inflation will average 2.25% over a 10-year horizon—a low level.

The three factors mentioned earlier that may continue to lift inflation will take time to influence prices. Economic growth and job gains will likely need to increase further and remain at higher levels to generate sustained price pressures. Wage pressures, a bigger driver of inflation, remain muted and limit the potential pace of price gains, but signs of wage pressures may be emerging. The most recent Employment Cost Index (ECI) released for the quarter ending March 31, 2014, diverges from the recent trend of small business that intend to increase worker compensation [Figure 3]. The next release of the ECI, in late July 2014, may reflect the stronger compensation plans. We expect this to translate to a gradual increase in the rate of inflation.

Still, any increase in inflation is noteworthy due to the diminished protection offered by high-quality bonds. Subtracting the annualized rate of inflation from the 10-year Treasury yield reveals how high-quality bonds remain expensive. The greater the inflation-adjusted, or real, yield the more attractive bond valuations are and vice versa. The real yield has turned substantially lower in 2014, despite indications of an improvement in economic growth prospects in recent weeks [Figure 4]. Real yields still indicate an expensive bond market and one that is not properly compensating investors for inflation risks even if modest.

We believe inflation is likely to increase only slowly, but current bond yields offer limited protection against rising inflation. Low real yields present an unattractive investment proposition for bond investors, and renewed weakness in the economy is needed to justify current real yields. Inflation is likely to creep toward the Fed’s 2% target over 2014 and into 2015, meaning the Fed is likely on track to raise rates in late 2015/early 2016. The Fed is projecting a median 1.0% and 2.25% fed funds target rate by year-end 2015 and 2016, respectively, but fed fund futures indicate a 0.6% and 1.6% rate for the same time periods—a significant disparity. Fading rate hike expectations indicate pricing could be as good as it gets for high-quality bonds.

How to Avoid the Most Common Required Minimum Distribution (RMD) Mistakes - posted by Brian Mayer, RMR Wealth Management, LLC

RMR Wealth Management - Thursday, May 22, 2014

(originally written by Barry Glassman)


When you put earned income into a tax-deferred account like an IRA or a 401(k), Uncle Sam eventually wants to collect those taxes. So starting in the year you turn 70 ½, the IRS requires that you take a Required Minimum Distribution (RMD). It’s important to know when and how much to take to avoid hefty penalties. Here are the Top 5 mistakes people make with RMDs and how you can avoid them:

1.       Knowing when to take the first distribution

One of the most confusing RMD requirements and the question most people ask is, “When do I have to start taking my required minimum distributions?” The clock starts the year that you turn 70 ½, but you can delay taking that first distribution until April 1 of the year following the year that you turned 70 ½.

Let’s say you turn 70 ½ on November 5, 2014. For this first distribution, you can elect to either take the RMD by December 31 of 2015, or wait and take it by April 1 of 2016. Keep in mind that if you delay your first RMD distribution to 2016, you’ll have to take two RMDs in that year, one for the delayed initial year, in this case due by April 1, 2016 and one for the prior year, due by December 31, 2016.

2.       Missing a required distribution

The most common mistake people make is to forget to take a required minimum distribution each year. As I mentioned above, with the exception of the first year, RMDs must be taken by December 31 each year. If you fail to take the full required distribution by December 31, the IRS will impose a 50% penalty for the amount not taken on time.

3.       Not calculating your RMD correctly

Many people forget to include all their retirement accounts when calculating their RMDs. These accounts include:

•Profit-sharing plans
•Traditional IRAs, as well as IRA-based accounts such as SEPs, SARSEPs and Simple IRAs
•Traditional and Roth 401(k) and 457(b) plans
•403(b) contracts
Your RMD calculation is based on the December 31 balance in those accounts so you’ll need to have your December account statements handy.

If you have multiple IRAs, you can add those balances together and treat the calculation as one. The same goes for 403(b) contracts.

4.       Taking the distribution from the wrong account

RMDs from multiple IRAs or 403(b) accounts can either be taken from each account, or aggregated and taken from just one account. But keep in mind that you can’t take those distributions from another type of plan, i.e. you can’t take an IRA distribution from a 403(b) account or a 401(k) distribution from an IRA account.

401(k), 457(b) and profit-sharing plans cannot be aggregated. Each RMD must be calculated separately and taken from that account.

5.       Not planning ahead for your RMDs

The world of RMDs is complicated with exceptions and rules for many circumstances from naming beneficiaries, to the treatment of inherited IRAs, and those still employed at 70 ½, not to mention tax planning for RMDs. This list is long and mistakes are all too common, so it’s a good idea to seek advice from your accountant or financial planner before it’s time to take them. For answers to many RMD questions, a great resource to consult is The Slott Report - American’s IRA expert.

Required Minimum Distributions, like death and taxes, are a fact of life for those who deferred taxes on their income. While you can’t escape this requirement, by understanding the details, at least you’ll avoid costly penalties.

Your Financial Checklist For Every Stage of Life - posted by Brian Mayer, RMR Wealth Management, LLC

RMR Wealth Management - Thursday, May 01, 2014

(originally written by Laura Shin)


A good friend of mine messaged me recently. She was facing the big 4-0, and, as people are wont to do around significant ages, she got to thinking about some big questions.

Because life and money are inextricably linked whether we like it or not, her transition into a new decade also made her wonder how one’s financial priorities should change as the years pass.

Your financial goals should, in fact, shift along with your situation to serve your biggest needs. Some of your concerns will be long-term — for instance, saving for retirement takes place across decades — but that doesn’t make shorter goals, such as saving for a down payment on a home, any less challenging. Knowing what financial milestones to hit when will help you ensure that you don’t have to scramble for any of them.

“Most people when they’re getting into the workforce or out of college don’t look at their overall financial picture. You’ve got to look long term and short term as well. The earlier you look at the short-term milestones, the easier it will be to secure your retirement in your future years, so getting situated in your 20s makes it easier to plan in your 40s, 50s and 60s,” says Andrew Rafal, partner and cofounder of Phoenix-based Strategy Financial Group.

Here’s a cheat sheet on what financial tasks you should take on when. Keeping in mind that people hit different milestones at different times — for instance, some marry and become parents in their 20s and others in their 40s — these money to-dos are tied to life landmarks rather than ages.

New Grad, Entering The Workforce

1. Make a budget.

Know what your income is and learn not to spend more than that. That’s how you’ll start to build your wealth. Here’s a primer on how to create a budget.

2. Track your expenses.

Plenty of online aggregators, such as Mint or EMoney, will hook up to all your financial accounts so you can get an easy snapshot of where your money is going, how your investments are doing and other trends in your finances, like your net worth. That information will help you make smart choices and reach some of the more challenging goals. “Having the visual of your income and expenses is the first step to building that retirement plan,” says Rafal.

3. Pay down your debt.

If you have credit card debt, that is higher priority than your student loan debt. “Most credit card loans debt will be three to five times higher in interest than the student loans, so we’d want to focus on paying those down first, and pay the minimum to student debt,” says Rafal. Once you pay off the cards, then you can pay more than the minimum on your student loans.

4. Start saving for retirement.

If your employer offers a 401(k), 403(b) or similar retirement account and offers a match, do what is required to get it. For instance, if you need to contribute 4% of your salary to get that match, be sure to do so. It’s free money from your employer. If you can afford it, also begin contributing to a Roth IRA. Use this guide to see how you should set up your financial accounts.

5. Designate beneficiaries on your financial accounts.

When you name a beneficiary on an account, you’re designating who should receive the assets in the event of your death. This is a basic financial task you’ll have to return to, as your life changes. For now, you’ll probably want to name your parents or siblings, presuming you’re not married.

6. Start your estate planning.

Get a power of attorney, which designates someone to act on your behalf in business and legal matters should you become incapacitated, and a living will, which outlines in advance what actions you’d like taken regarding your health should you no longer be able to make those decisions yourself. Also, name a health care proxy, which is a power of attorney for your health decisions.

7. Get disability insurance.

If your employer doesn’t offer it and you can afford it, this insurance will provide you an income stream should you become unable to work. “It’s critical, whether you’re in your 20s, 30s, 40s, 50s or 60s,” says Rafal.

Advancing In Your Career

1. When you switch jobs, be sure to negotiate.

The earlier you start earning more, the more you’ll earn over your lifetime, as those increases compound on each other . Learn here how to negotiate your salary.

2. Also, take your retirement money with you.

Especially since people nowadays tend to stay at companies for shorter periods than prior generations, make sure to take your 401(k) or 403(b) money with you when you go. You can either roll it over to your account with your new employer or move it into an IRA you control at a brokerage firm of your choosing.

3. Start working with a fee-based financial planner with an eye on retirement.

Find a planner who will work with you for a couple of hours for a flat fee. He or she can give you a high-level overview of what you should be focusing on money-wise and how you can save for the marathon financial goal of saving for retirement.

“They can show you saving a certain amount every month at a certain rate of return — this is how much you’ll have in the future. In the 20s or 30s, that’s something we don’t really think about the future. We focus on the short-term. But having someone explain that to you and map it out, that’s critical for success,” says Rafal. Find out here the 10 questions you should ask a potential financial advisor.

Getting Married

1. Create (or update) your will, and update your beneficiaries, power of attorney, health care proxy, etc.

Most people will want to update these to name their spouse.

2. Look into getting life insurance and re-evaluate other insurance policies.

Some couples will opt to get life insurance right away and others might wait until they have children. It depends on your situation and predilection. Some couples in which each partner earns roughly the same amount may opt not to, but others in the same situation might buy life insurance simply to lessen the blow of the loss of that income during an already difficult time. “With both [people] earning and the fact that term insurance is cheap, it’s one of those things we hope we never need to utilize, but it’s just part of that asset protection. If somebody does pass away early and you’re grieving, it’s just another piece of covering the what-if scenario,” says Rafal.

Look into getting group term insurance, which will cover you for a period of time, through your employer, or if you feel you need extra coverage, buy your own individual term insurance.
Also, if, through marriage, two health insurance policies become available to you, compare them to see if it makes the most sense for both of you to be on one. Re-evaluate if your disability insurance coverage would be adequate, and add your spouse to your auto insurance coverage.

Buying A Home

1. Buy a house that won’t put too much stress on your assets.

“Don’t overextend,” says Rafal. “Work with an investment advisor and a mortgage broker to make sure when you purchase that home that you’re comfortable with your income and debts.”

2. If you’re married and haven’t bought life insurance yet, look into it now, and update your disability insurance.

Now that you’re taking on a big debt together, it may make sense to get life insurance so that if something happens to one of you, the survivor can still pay the mortgage. Make sure your disability insurance policy would cover the cost of your home.

Having Children

1. Review your estate plan.

Draw up a will if you haven’t yet. “Work with a licensed attorney to make sure not only the assets are protected and but that you’re protecting against incapacity and that if anything does happen, your children will go to the right guardian,” says Rafal.

Establish a trust if you have substantial assets and would want to leave your assets to your children in a way not immediately payable to them upon your death.

2. Start saving for their college education.

Open a 529 account for them, and get in the habit of saving every month with automatic transfers, but if you have to choose, make saving for retirement a higher priority. Your children can always take out student loans, but there are no loans for retirement , and if you save for their college over your retirement, they may end up having to support you later on.

3. Relay financial lessons to your children.

Instill good habits in your children starting from a young age.

Established In Your Career

1. Max out your retirement contributions.

At this time, you’re probably earning the most you’ll earn in your life, so you want to make sure to save as much as you can in both your employer-sponsored retirement account as well as in your own Roth IRA or traditional IRA.

2. Be proactive in your tax planning.

Meet with a licensed CPA to maximize your deductions, since this is also the time when you are likely to be paying the highest taxes. You may also want to set up a Health Savings Account, which will allow you to save on health expenses with pretax money, while also potentially using that money as an investment vehicle.

Also analyze your investment choices according to your tax liabilities. Rafal suggests taking more risk in your after-tax accounts such as a Roth IRA or Roth 401(k) where you won’t pay any tax on the earnings of those investments.

3. If you find yourself taking care of your parents, consider their needs in the context of all your financial priorities.

Home health care and assisted living facilities are expensive and those costs need to be weighed against saving for your own retirement and your children’s college educations. Talk with your siblings to come up with a solution that takes into account all your other needs.

4. Consider your own long-term care plans.

“This is also a good milestone to look at, ‘What can I do, so I’m not a burden on my family?’” says Rafal. Investigate traditional long-term care insurance, which would provide nursing-home care, home-health care or other types of personal care for people over 65 who need supervision.

Because many people find long-term care insurance expensive and they are mostly considering buying it right when they are also facing the financial challenge of retirement (usually in the 50s), many opt not to buy an expensive type of insurance that they are not certain they will use. One new option that helps alleviate those fears of not using the insurance is hybrid policies that offer life insurance with a long-term care option attached. However, they require a large upfront investment and offer meager returns, so they are not for everyone. For many, they are more of an estate-planning tool.

5. Begin planning your retirement income.

“Most people work their lives, they build assets and accumulate but don’t have a plan on the way down,” says Rafal. To turn from this accumulation mindset to the decumulation mindset, talk with your financial planner about how best to turn your savings — your 401(k), IRA, Social Security, pensions, etc. — into income. Consider buying an annuity, in which you use a chunk of your retirement savings to buy yourself a guaranteed source of income for a certain time period.

Learn how the age at which you take Social Security will affect the amount you receive, about required retirement income distributions, how to pull money from different retirement accounts without getting hit with a big tax bill, etc.

This would be a good time to talk to a new type of financial planner called a Retirement Income Certified Professional (RICP), who specializes in helping people turn their retirement assets into income. An RICP can look at important financial factors such as whether you might outlive your nest egg considering inflation and best- and worst-case scenarios when it comes to your investments, health expenses and more.

6. If need be, catch up on retirement contributions.

If you’re behind on building your nest egg, at age 50, you can start contributing higher amounts to your 401(k) (an extra $5,500 annually in 2014) and IRA (an extra $1,000 in 2014).


1. Know your budget.

Even before you retire, know what your income and expenses will be. With your planner, review your plan for turning your assets into steady income in the most tax-efficient way possible. Also discuss when the best time is for you to start taking Social Security. Make sure you’re familiar with the biggest money mistakes retirees make so you can avoid them.

2. Review your investments.

Look at your risk tolerance to maintain the nest egg you built and not suffer a big loss right at the beginning of your retirement.

3. Downsize.

A smaller home could help reduce your property taxes, utilities and other expenses. Moving to a new community could also have social benefits.

4. Look at how to fund potential long-term care costs.

If you didn’t opt to buy a policy before, look at how you could self-fund, sign up for a long-term care or hybrid policy now, or work out a plan with your family.


1. Don’t make any immediate changes.

Work with a trusted advisor to make sure your retirement plan is still on track. If there are life insurance proceeds, invest based on your current goals.

2. Review your estate plan.

“You may have developed an estate plan years ago that hasn’t been updated. Work with an attorney so if you’re incapacitated, loved ones can step in and make both medical and financial decisions for you. Also, make sure the assets can pass to family in way you intended at this point in your life,” says Rafal.

3. Downsize, and consider moving to a full retirement community.

These types of homes have a range of activities and can accommodate independent living as well as offer some assistance and even full-time care.


Are You Set To Pay A $262,800 Nursing Home Bill? - posted by Brian Mayer, RMR Wealth Management, LLC

RMR Wealth Management - Tuesday, April 15, 2014

(originally written by Richard Eisenberg)


Today is one of the most depressing, but significant, personal finance days of the year. And I’m not referring to Tax Day Minus One.

I’m talking about the release of the annual Genworth Cost of Care Survey — the median cost of long-term care in nursing homes, assisted living facilities and at home.

The news is never pretty, but some of this year’s numbers are especially scary. As Bob Bua, Genworth Vice President, told me: “The consumer needs to be educated how expensive this is.”

How expensive?

$87,600 for a Nursing Home

The median annual rate of a private room in a nursing home is now $87,600, according to Genworth. That’s up a stunning 4.35% over 2013. Over a three-year period — the longest most nursing home residents stay — that room would cost $262,800, assuming its price doesn’t continue rising.

A semi-private room in a nursing home now runs $77,380, Genworth found. That’s an increase of 2.62% from the previous year.

Key Long-Term Care Costs Outrunning Inflation

Those price rises are substantially more than U.S. inflation overall. Inflation only increased 1.5% last year; medical price inflation rose 1%, according to the U.S. Bureau of Labor Statistics. (Hospital and related services spiked by 4.9%, however.)

If these nursing home costs surprise you, you’re in good company. A recent AP/NORC survey found that 58% of people underestimate the costs of a nursing home. You can test your long-term care knowledge at a clever quiz that PBS Newshour created.

Other figures from Genworth’s report:

•The median national cost of a room in an assisted living facility is now $42,000, up 1.45% from 2013.
•Hiring a home health aide for long-term care costs $20-an-hour or $45,188 annually (median rate). That’s a one-year increase of 1.59%.
•It costs $43,472 a year ($19 an hour) to employ someone to handle homemaker services. These include things such as shopping, cooking, cleaning and transportation to doctors’ appointments. That figure is up by a striking 4.11% over 2013.

Genworth’s CareScout subsidiary compiled its data by surveying nearly 15,000 long-term care providers in 440 regions nationwide. It has published results every year since 2004.

Why You Should Care About Long-Term Care Costs

The reason these numbers matter so much: If you live to 65, there’s a 70% chance you’ll need some form of long-term care services in the future. The number of Americans needing long-term care services and supports is expected to mushroom from 12 million in 2010 to 27 million in 2050, according to the U.S Department of Health and Human Services.

As I reviewed the Genworth survey, I was quite surprised to see the nursing home private room rate soar by more than 4% in a year.

When I asked Bua what he thought accounted for that, he explained that most people in nursing homes stay in semi-private rooms since Medicaid often pays for that. “So the private-room rate is a chance for nursing homes to be a little more profitable to help cover the costs of government reimbursement,” said Bua. “A private room has a lot of value to some people. And if they have the money, they’ll pay for it.”

Bua said the 4.11% rise in homemaker services “was a surprise to us.” He thought that might be due to increased demand for home care by people needing long-term care (and their families) rather than nursing homes and assisted living facilities.

Big Cost Differences Depending on Where You Live

Genworth’s study also showed sizable regional variation for long-term care costs.

The median cost of a private room in a nursing home now ranges from $57,488 in Oklahoma to $240,900 in Alaska; a semi-private room goes from $52,925 in Oklahoma to $237,250 in Alaska.

Aside from Alaska, nursing home rates are highest mostly in the Northeast, the Northwest, California, Washington state and Hawaii, where they typically hover around $100,000 or more.

While $42,000 is the median rate for an assisted-living facility, the cost exceeds $60,000 in Alaska, Connecticut, Delaware, Massachusetts, New Jersey and Washington, D.C.

Costs vary much less regionally for home health aides and people providing homemaker services.

What the Numbers Mean For You

So what do the study’s results mean for you and your family?

If you’ll be looking for long-term care for your parent or a loved one, don’t assume that the care will necessarily be better just because it’s more expensive than in another part of the country. Bua said there’s no correlation between an area’s higher cost of care and the quality of services provided.

That said, you may well want to factor in the huge geographic cost differences for assisted living facilities and nursing homes when looking for a place to provide care for financial reasons.

“Absolutely, this is one of several factors to consider,” said Bua. “It’s also a factor to consider when thinking about where you will want to live in retirement.” After all, you may need long-term care someday too; most Americans over 65 do.

Genworth’s website lets you compare the minimum, maximum and median cost of long-term care in each state and see the compound annual median growth rate over the past five years.

The new Genworth numbers also provide yet more evidence that you need to save a good chunk of money for potential long-term care costs.

Only 35% of Americans have done so, however.

8 Retirement Questions A 50-Something Couple Needs To Answer - posted by Brian Mayer, RMR Wealth Management, LLC

RMR Wealth Management - Thursday, April 10, 2014

(originally written by Janet Novack)


As an economist, MIT prof James Poterba can run a regression analysis and assume a can opener (see footnote 1) with the best of them. After all, he is president of the National Bureau of Economic Research, the wonky organization that officially determines when U.S. recessions start and end. But Poterba, who has studied savings behavior and retirement for decades, also has a knack for turning what economists know (and don’t know) into insight for the rest of us.

Last week, during a speech at a Washington retirement conference sponsored by the Investment Company Institute (the mutual fund companies’ trade group), the 55-year-old Poterba set out eight questions he’s come up with to help 50-something friends, neighbors and relatives think about whether they’re saving enough for retirement. Considering the answers in your own case could help you figure out whether you need more or less savings than one or another rule of thumb calls for. Fidelity Investments, for example, suggests you should have five times your salary in 401(k)s and IRAs by age 55. That’s unrealistic for low earners who will be relying primarily on Social Security, but might be too low if you have Methuselah genes and plan to retire at 62 to travel the world.

Here are Poterba’s questions, along with a few of his insights and my two cents worth of advice.

“When Will We Retire? Will We Control That Choice?”

The good news for retirement security is that the labor force participation rate of those aged 65 to 69 has been steadily climbing since 1985; Poterba’s calculations show that much of the average increased life expectancy at 65 is actually being spent in extra years of work, not retirement. But the second part of his question—about control—is crucial too. Those nearing retirement typically say they plan to work longer than they end up doing. So a little slippage is normal. But being forced, by layoff or ill health, to stop working years before you planned is likely to land you on rocky financial ground in retirement.  Fifty is a good time to take a hard look at your industry and career prospects. If they’re not so hot,  amp up your savings. (Yep, fellow print journalists, that means you.) It’s also a fine time to refresh your skills and your contacts and to start a side-gig that can help you switch careers or become self-employed if you lose your job.  (Some smart—and tough–advice from Kerry Hannon on job hunting over 50 is here.)

“How Long Will We Live?”

Forget average life expectancy. One of the most striking slides in Poterba’s presentation showed just how much male life expectancy at 65 has diverged by income. For men turning 65 in 1977, the top half of lifetime earners could expect to live an average of 15.5 years, versus 14.8 years for the bottom half. By 2006, male life expectancy at 65 for the top half of earners had risen a full six years to 21.5 years, while the bottom half had gained less than a year and a half, creeping up to 16.1 years on average. But don’t just generalize based on your earnings. As I wrote in January, your personal life expectancy is the essential number for retirement planning.  Take some time to run the Living To 100 individual life expectancy calculator (which includes detailed questions about your family history and present health) as well as this couples calculator for joint life expectancy.

“What Will We Do When Retired? Municipal Golf Course or Country Club? Early Bird Specials or Four Star Restaurants?”

Some of the most interesting research has to do with retirement spending patterns. Spending “falls at the moment of retirement by about 10%,’’ noted Erick Hurst, an economics professor at the University of Chicago Booth School of Business. It’s not just that work related costs (commuting, new work clothes, dry cleaning) disappear. Hurst’ research shows retirees substitute time for money; for example they shop more for bargains and spend more time cooking. They don’t cut out tablecloth restaurants, but they do cut back on fast and convenience food. Bottom line: they live just as well, if not better, but for less. Yet not every couple spends less. Michael Hurd and Susann Rohwedder of the Rand Center for the Study of Aging have found that the wealthiest quartile of retirees actually increase spending—anywhere from 7% to 18% depending on how it’s measured—as they travel and make other expensive uses of new leisure time.

Note, however, that even retirees who start-out spending big reduce their consumption outlays as they age—and not because they’re short of cash. (Indeed, those 85 plus increase their giving to charity and relatives, Hurd noted in an interview.) So while financial planners used to routinely assume you needed your income to grow with inflation each year—and most planning software still does—practitioners are now adjusting their models to assume spending declines after 75, reported Stephen Utkus,  director of the Vanguard Group’s Center for Retirement Research. “It’s much more practical. It recognizes that consumption declines with fragility and aging,’’ he observed.

How Much Of Our Retirement Should We Expect To Live Together? How Much Less Do Widows Need? “

Go back to that Living to 100 calculator. Compare results. A woman’s usually longer life expectancy, coupled with the fact that men are  at least four years older in a third of U.S. marriages, makes this a big issue for many couples. Think about strategies to maximize the surviving spouse’s welfare, without preventing you from enjoying your early retirement years together. Pay particular attention to Social Security claiming strategies for couples and to survivor’s benefits; if a higher earning husband waits until 70 to collect the largest possible Social Security check, his widow will get that bigger Social Security monthly check in place of her own smaller benefit. As I wrote last week, if you plan to move to the outer suburbs or a rural area for retirement, consider how an 80-something or 90-something widow will get around if she stops driving or cuts back drastically.  Look for a suburb that allows high-density apartments, as well as single family homes; that way she can downsize and address both budget and transportation limits—without having to leave her social networks behind.

What Will Government Transfer Programs Look Like?”

“If you’re in your 50s today, and you’re thinking about a life expectancy which has a reasonable probability of taking you out until your 90s,’’ said Poterba, there’s a “material risk” that these programs could be changed. He didn’t speculate about what those changes will be, so I will. For one thing, middle and upper income seniors will be required to pick up a bigger share of Medicare costs. Already, couples with adjusted income above $170,000 and singles earning more than $85,000 pay additional premiums ranging from $42 to $230 extra per person a month. For those now under 55, House Budget Committee Chairman Paul Ryan (R-WI) would convert Medicare into an income based “premium support” or “voucher” program, which would end up requiring seniors to pick up a greater share of rising costs.

As for Social Security, it remains (at least this election year) a political sacred cow. In their Fiscal 2015 budget proposals, both Ryan and President Barack Obama backed away from earlier “chained CPI” proposals that would have reduced yearly inflation increases for beneficiaries. I consider big changes to Social Security for those already over 55 unlikely. Still, without tax increases or benefit trims, Social Security (under its current budgetary treatment) will be able to pay just 77% of promised benefits when its “trust funds” are exhausted in 2033, Chief Actuary Steve Goss noted. So the better-off could well see some cuts. To put that in perspective, in 2013 the highest-income quartile of seniors got just 18% of  total income from Social Security, Poterba calculates. By contrast, he noted, the poorest fourth of seniors relied on Social Security for 85% of their income.

Side note: The Obama Administration has said it is looking into limiting the “aggressive” strategies better off couples use to maximize their Social Security take. Goss confirmed at the conference that the  “file and suspend” strategy is the target and that any change would take  Congressional action—meaning it can’t be done suddenly by regulatory fiat, which is the way the Social Security Administration suddenly killed the “do-over” strategy in 2010.)

“Will Our Children Support Us? Will We Support Them?”

For higher income folks, Poterba said, “this may turn out to be a very important question, because what they would like to do for their children may be much beyond consumption for themselves.” Okay, maybe you’re ready to cut your Millennials loose. But some boomers, Poterba observed, are still also asking themselves “`What if my parents need long term care in their 90s?’” Indeed, boomers who earned and saved equal amounts could face very different retirement prospects based on whether they have to help support their parents or receive an inheritance from them.

How Will We Pay For Health and/or Long Term Care?”

That, as Poterba’s question suggests, is a big issue. But for my money it is best addressed as part of an overall saving and spending plan, not by going out in your 50s to buy long term care insurance. UCLA economics prof Kathleen McGarry noted that while out of pocket spending is large in the last year of life, it increases with income. It is unclear, she said,  how much of it is in fact discretionary—representing, for example, a preference for staying at home with paid health care aides to avoid having to enter a nursing home.  Meanwhile, new research by Rohwedder, Hurd and Pierre-Carl Michaud projects that a higher share of the population will enter a nursing home before death, but for shorter average stays, than previously thought. That more predictable, but smaller, expense suggests buying LTC insurance makes sense for fewer people and strengthens the case for self-insurance (that is, saving for nursing care), Anthony Webb, an economist at the Center for Retirement Research at Boston College, said in an interview. With current LTC policy holders facing the possibility of big premium increases and the market for new LTC policies shrinking, better off folks might instead consider buying deferred fixed annuities to cover the possibility of late in life long term care costs. As William Baldwin explains here, if you’re still healthy at 60, you can buy a deferred fixed annuity that starts paying you at 80, whether you need long term care or not. In essence, you’re buying a combined longevity/LTC insurance policy–not an ordinary investment.

What Return Will We Earn On Our Investments?”

Even after you consider all the big personal questions above, the return you earn will decide if savings rate X will produce your desired lifestyle Y.  While you can’t alter the expected returns in the stock and bond markets, take some time at 50 (and periodically thereafter) to understand the relationship between risk and return and your own tolerance for risk. For help, talk to a pro or use sophisticated asset allocation software from Morningstar Inc. or Financial Engines—one or the other is available for free to tens of millions of savers through their workplace 401k plans.  Regardless of how you do it, find an asset allocation that allows you to sleep at night and hold steady. Within a few years of the market crash of 2008, most boomer retirement investors had recovered—except those who panicked and sold out at the bottom.


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