By Edward Leone Jr. CFP RFC DMD MBA
Contact Information: edleonedds@gmail.com
I must state that I am quite disturbed over the revision of GDP for quarter one of 2014. It is more than double the initial projection. Why bother with a projection if accuracy is going to be so poor. Let’s wait until the data is in to announce performance. I see the same problem with unemployment figures.We are celebrating a 6.1% when, depending on the population examined, it is as high as 12%. Inflation statistics are also misleading since they do not reflect the cost of living acceleration that many of us are experiencing.
Longevity insurance is coming up stronger on the scene since the U. S. Treasury has promulgated rules that will now allow the elderly to purchase these types of annuities with 401K or IRA funds. These products begin to pay a benefit at ages 80 to 85. If the beneficiary dies before that age, no benefit is available. This is another scare sale which may appeal to those who are afraid that they run out of money. An other bunch of rhetoric out there regarding fear of investing is the volatility in equity markets. Volatility is a benefit to investors since it allows the reinvestment of dividends in order to compound returns at bargain prices when markets are down. Studies show that this phenomenon can compose up to 53% of total equity return over a 30 year period with the remainder of the return coming from price appreciation.
The Heritage Foundation is promoting policy to end the Social Security Spousal benefit since this benefit has become outdated as a result of the benefit which both male and female spouses can get on their own accounts being adequate. Foundation representatives are also urging Congress to means test for Social Security benefits. Are these solutions which will help sustain the program into the future? Will the population go along with such changes? Will some payroll tax increases be also add to the mix? We cannot sustain the program as it currently operates since the disability reserve fund is depleted in 2016 and the old age and survivors reserve fund is projected to be depleted by 2033. These events are expected to produce a 25% reduction in benefits since the programs will be supported by payroll tax revenue only.
It appears that based on a study done by Bankrate, that the top 10 states in which to retire have low taxes, quality health care and lower costs of living. These states are as follows: South Dakota, Colorado, Utah, North Dakota, Wyoming, Nebraska, Montana, Idaho, Iowa and Virginia. Well so much for the warmer climate!!
In my previous blog, I talked about the 401K piggy bank and the penalties paid by those involved in early distributions. I should perhaps point out that there some exceptions to the early withdrawal penalties depending on the utility of the distribution from a 401K. They are as follows: health insurance premiums if unemployed, qualified higher education expenses, unreimbursed medical expenses in excess of 10% and the purchase of a first time home. Tough choices!!
For The Record:
DJIA 17,068.26
NASDAQ 4,485.93
S&P500 1,985.44
Suggested Reading: “Out of the Crisis” By W. Deming
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