Leonesmoneymonitormonthly's Blog

By Edward Leone Jr. CFP RFC MBA DMD

Contact Information:  edleonedds@gmail.com

303-478-6793

Our last blog addressed the basics of the Social Security System. It is common knowledge that the system cannot perform into the future as it does today as a result of demographic forces at work in our society. With a large portion of the population retiring (13.1% over the age of 65 in 2013 and 21.4% by2050) and fewer people paying the FICA tax, it is projected that by 2033, the system surplus of $2.7 trillion will be depleted. If no changes are made in the system structure, benefits will be reduced to about 77% of current levels. Such program adjustments as increasing the tax and the amount on which the tax is applied, increasing the retirement age at which benefits can be collected along with changes in the benefit structure are essential to the continued existence of the program. Just how popular will these initiatives be? How can the system be made more efficient administratively and productive in yield capacity? Mean while many of you have your 401K. Be sure to contribute full amounts if possible. Allocate funds to help reach retirement goals while taking into consideration you risk tolerance. Rebalance allocations at least annually.

Rodney Johnson in the August edition of Boom and Bust points out a continued problem with the growth pattern of our US economy. Median household income in the US is down from $57,000 in the year 2000 to $52,000 today. Discretionary dollars dedicated to consumption are just not as plentiful. Our GDP is trending downward. It was 2.4% in 2014 and is projected at 2.2% for 2015.

Health care issues continue to challenge the system. Medicare Part B premiums may increase by as much as 15% next year. It is possible that benefit rates paid to your doctor by Medicare will drop by 20%. Will these care givers what to see you? The Obamacare Cadillac Tax on high-dollar health insurance programs will come to be in 2018. Watch a fight in the Congress over this one. Employers will continue to cost shift health care issues to employees due to elevating costs. There is no clear solution in sight just yet over the problems at Veteran Administration facilities.

There is much concern about the situation  with oil prices both on the positive and the negative. The positive is in the area of cost savings for transportation of goods and our own travel costs. The negative has to due with the continued health of the industry and job availability. Most commodity prices are down right now, but is the oil market force of supply and demand at work or are we seeing a massive geopolitical intervention into this market place?

12billion web searches are conducted by consumers per month in the US. There are great opportunities to share information and generate marketing strategies on the internet given this information. Social media marketing is expected to increase in spending by 126 percent over the next 5 years.

The Presidential election cycle has begun and will be quite entertaining. Let’s hope outcomes are favorable for the country and its citizens!!

For The Record:

DJIA                     17,348.73

S & P 500               2,079.61

NASDAQ                5,019.05

Suggested Reading:   “Marketing Strategy” By Ferrell and Hartline

By Edward Leone Jr. CFP RFC MBA DMD

Contact Information:  edleonedds@gmail.com

303-478-6793

I view and hear many concerns over Social Security benefits and receive questions from time to time from those who qualify for benefits and are forced to retire early as a result of job loss or disability. Let’s review the basics regarding the Social Security Program:

When you receive a paycheck, you contribute 6.2% of your compensation to the Social Security system. Your employer matches that amount making the total contribution on your behalf 12.4%. 40 credits are needed to be eligible for benefits. You gain a credit for each $1,220 earned annually limiting the maximum number of credit to 4 per year. This means you must have engaged in an earning strategy (employment or business ownership) for a minimum of 10 years to qualify for benefits. Your benefit is calculated based on your 35 years of highest earnings. If you have worked for less that 35 years, the missed years are counted as zero. For 2015 the average benefit is $1,328 and the maximum benefit is $2,663. For 2015, the amount of earnings from which Social Security tax is drawn has been capped at $118,500. Information regarding your benefit projections comes in the form of a paper statement if you are over the age of 60. This information is also available to all who have an interest at http://www.ssa.gov. You may begin to take benefits as early as age 62 and can delay taking benefits up to age 70 with incremental benefit increases as a percent of your primary insurance amount: 62 75%, 63 80%, 64 86.7%, 65 93.3%, 66 100%(note that full retirement age is increasing to 67), 67 108%, 68 116%, 69 124% and 70 132%. There are a variety of options for those married couples where both spouses are employed. To maximize benefits, it is wise to consult with your financial planner in an effort to coordinate the timing of taking benefits. Those who have worked for some of their productive years in an environment where Social Security tax was not paid, may find benefits reduced or not available.

Among other issues which kick in on January 1, 2016 regarding Obamacare, the IRS will level heavy fines on employers who are inaccurate in the filing of forms 1094-C and 1095-C which report the health coverage an employer offers to employees. These fines will range from $250 to $500 per form depending on the deficiency of information. A form must be filed for each employee. You can see just how expensive this requirement is in time and effort, but the penalty fees can really add up.

There is much concern expressed in  the media regarding the potential for the next economic bubble or an economic collapse. We hear about Greece, China, Euro zone debt and high unemployment, Japan and our own struggles with the U. S. economy. Our economic recovery is in its seventh year. The growth phase for the U. S. economy averages about six years. This particular economic recovery which began in 2008, has been uncharacteristically slow. Does this mean that we will continue to see economic recovery in this country a little longer into the future since the work force is shrinking, inflation is low and bank lending is also bellow norms? Let’s hope so. It is clear that many just do not have the discretionary dollars to spend on consumption as they once had. Public consumption is a large portion of the economic driver.

Many are aware that Alaska, Colorado, D.C., Oregon and Washington permit legal use of recreational marijuana. It appears that in this next election cycle California, Michigan, Ohio, Maine, Massachusetts, Arizona and Nevada may be considering a similar move. What does this all mean to our society and the relationship between state and federal law??

For The Record:

DJIA                18,086.45

S & P 500         2,126.64

NASDAQ          5,210.14

Suggested Reading:      “Tools and Techniques of Employee Benefits and Retirement Planning” By Lemberg

By Edward Leone Jr. CFP RFC DMD MBA

Contact Information:    edleonedds@gmail.com       303-478-6793

The global energy seen is very interesting. The U. S. is a major producer of petroleum products. This fact puts other producers such as those in the Middle East and Russia along with some South American Countries in competition in the demand and supply dynamic. The U. S. is and will continue to be a reliable supplier as opposed to some other sources. Our challenge is transportation of product within our country and abroad. Look for aggressive business activity with entities engages in export networks, terminals and sea ports. The current slump in oil prices is not hurting U. S. production as much as reducing development of new wells and reducing capital expense on equipment.

Our most followed equity indexes have been quite volatile and through 6 months have shown very small advances in yield. The S & P 500 index is up 2.07 percent year to date. What will the next 6 months hold for equity returns? How should investors set up asset allocation and diversification strategies? How will investor biases influence financial behavior and how can some of us make an advantage of those behavior patterns? There is much to think about here. A disciplined investment strategy which contains reasonable goals over a reasonable period of time is a way to deal with much of what are future challenges. 401K plans and personal IRAs now hold $7 trillion while total nongovernment assets held by the population is estimated at $99 trillion. I am not sure what these numbers mean and will do for us when 41million of us are over the age of 65 with  increases of 15% over the last 10 year increment which is projected to continue up to 2030. On the brighter side of things, Kiplinger is projecting a 7% annual return for the S % P 500 index while adding in dividend returns, this looks like a potential 9% year. Their writers feel that corporate earnings will be up and that the economy will improve due to increases in consumer spending. It is evident that diversified, safe and liquid investment vehicles are important for the parking of cash and cash equivalents. Investing in equities with a value orientation strategy is also an important consideration. Equity investments which demonstrate  P/E ratios (price to earning) below the long term average, P/B ratios (price to book) which demonstrate value and P/S ratios (price to sales) less than 3 deserve a look.

It is clear that the monetary policies being engaged by global central banks will be an element in saving the banking system. It appears to many that this activity is also improving the economy since more cheap (low interest money) is available. This may be an element, but much of the money being created is designed to enhance bank balance sheets and may not find its way into the U. S. economy and the global economy. Many are concerned about the big hit that may occur when interest rates go up if there has not been significant improvement in economic growth first. I have stated before that monetary policy as engaged by the FED and other global central banks is at its limit of positive impact and that fiscal policy engaged by Government is necessary to see economic improvement. Government cannot continue to take financial resource out of the economy which could be used by industry and individuals to grow the economy. U. S. Government debt is at $18 trillion while Social Security and Medicaid legacy costs are estimated at $75 trillion. Service on Government debt at these low interest rates is at $535 billion a year. What will it be when interest rates go up? The Government spends $3.5 trillion a year, but takes in $3.1 trillion a year. Do you get the picture? Many Government activities regarding programs, regulation, borrowing and taxation will have to change if economic growth is the be generated at a more accelerated pace. Just look at what is going on with Greece!

For The Record:

DJIA                  17,946.68

S & P 500           2,101.49

NASDAQ            5,080.51

Suggested Reading:   “America 2020” by Porter Stansberry

By Edward Leone Jr. CFP RFC DMD MBA

Contact Information: edleonedds@gmail.com  303-478-6793

These are very challenging times for many of us regarding what is the status of our economy and what are wise actions for investing and saving. Although the equity markets are still rising and in record territory, retail sales, wholesale sales, exports, durable goods and factory orders are dropping perhaps due to the strength of the U S dollar against other foreign currencies along with a scarcity of discretionary dollars which consumers can spend. Consumer activity after all represents 70% of economic activity. Car sales have seen zero growth since autumn of last year. Due to these observations, it appears to me that the Federal Reserve Bank’s monetary policy strategy will not change by very much in the near future. There may be a very mild increase in interest rates to come our way soon, but nothing drastic given the conditions in the economy and the employment situation.This creates a big problem for the Fed if the economy slides instead of continuing at its snail paced recovery due to the fact that interest rates cannot go lower than they are now. The Fed would have no monetary policy options. The only remedies available would involve fiscal issues which the Congress and the Executive have ignored up to now. It is my suspicion that the continued growth in equity markets is due to the fact that many corporations are buying back stock either with profit dollars or with borrowed dollars because of low-interest rates. This action creates higher earnings per stock share and higher dividend yields since there are less quantities of stock out there.

Much of the monetary activity we have experienced since 2008, has been designed to save the banking system by building reserves on their balance sheets to mitigate their business mistakes involving poor loan qualities, derivative activity and the engagement of credit default swaps along with CDOs with faulty credit ratings. This has increased the size of the Fed’s balance sheet and increased Federal debt. Many global central banks are now engaged in the same monetary strategies due to a concern over strength of foreign economies. Is it possible to avoid an event where the pooh hits the fan? We all know that China, Japan and Europe are facing such challenges.

For those in retirement or in the red zone and planning on entering that status soon, there are some new concerns over the potential to run out of money. Certainly the issue addressed above need to be assimilated into a successful retirement strategy. A new number from studies conducted for the Journal of Financial Planning tell us that a couple with average income will spend $395,000 on health care in retirement. The average price of a hip replacement is $40,300. Given my career exposures I have some thoughts on how to reduce these costs which I will share in future blogs.

One industry which in my view is suffering in performance to consumers and credibility of its products is the insurance industry. I am not talking about traditional whole life and term life products, but the invention of a variety of insurance “investment products” with suspicious illustrations on investment return and premium structure. I also have concern over the ability of some companies  to maintain commitments on these type products. Watch out and seek expert help in making decisions on what is appropriate for you. Use a Certified Financial Planner and their working team to get where you need to go on so many wealth building issues.

For The Record:

DJIA                  18,010.68

NASDAQ             5,070.03

S&P 500              2,107.39

Suggested Reading:    “Fundamentals of Personal Financial Planning” By Jeff Mershon

By Edward Leone Jr. CFP RFC DMD MBA

Contact Information: edleonedds@gmail.com   303-478-6793

The decline in the price of petroleum products appears to be a very complex international and global geopolitical and market driven phenomenon. Both domestically and internationally, the cost of production and transportation of many products will be reduced. Those countries in which cost of production of petroleum products is higher than market levels at this time will lose market share. Is this political and for how long will it sustain? The market demand for petroleum products is high in Europe, China, Latin America, Mexico and other areas in Asia. Is this representative of a demand problem or supply restrictions for what ever reason? What do you think?

Another area of interest as it regards a major industry has to do with pharmaceuticals. There is a growing trend to reduce consumption of antibiotics in farm animals which are a part of the food supply. The theory is that this will reduce the incidence of antibiotic resistant bacteria which is becoming a big problem. Will this trend create problems with the quality and safety of meat products which we consume? How will this trend affect the cost of medicines to humans since at this time, 80% of antibiotics produced are distributed to farm animals?

If you are not engaged in aggressive use of digital technology, you may be missing exposure to the up coming Y Generation. 90% of these folks use the internet. 75% are engaged in social networking. 85% own a smart phone and 85% keep cell phones near by both day and night.

Other bits of information which may help you gage your status relating to habits regarding retirement savings are as follows:

The average 401k contribution in 2014 was $9,603.

Average 401k balances for the most immediate history are $77,300 for 2012, $89,000 for 2013 and $91,000 for 2014.

The average employee savings rate for retirement was 8.1% for 2014.

How do you stack up and is this pattern enough to satisfy future retirement need?

If your goal is a $1 million balance in your 401k upon retirement, at a 4% withdrawal rate adjusted for year to year inflation factors, you will have $40,000 of purchasing power, but don’t forget to add in your Social Security  benefit which averages $27,000 per/ year for a middle class couple. Is this enough to support your life style in retirement? See a financial planner to plot and appropriate strategy for retirement savings! Watch out for the variety of designations used by investment advisors. Use http://www.finra.org to judge who is mandated to function and advise in your best interest and with fiduciary obligations.

Another issue of great concern to families preparing financially for future retirement events and students graduation from college is student loan debt. The average for an undergraduate in 2012 was $25,900 according to the National Center for Education Statistics. Student loan debt rose from $241 million in 2003 to $1.08 trillion in 2013. In 2012, the average for graduate students was $46,620 and $102,460 for doctors and lawyers. Income based repayment loan programs have been available since 2009. Have your students and other family member look into these options to handle these debt obligations for Federal Student Loans. Public Service Loan Forgiveness programs are also available. Check with the U S Department of Education. Good luck!!

For The Record:

DJIA                          17,826.30

NASDAQ                    4,931.81

S&P  500                    2,081.18

Suggested Reading:            “Contemporary Financial Management” by Moyer, Mc Guigan and Ketlow

By Edward Leone Jr. CFP RFC DMD MBA

Contact Information: edleonedds@gmail.com 303-478-6793

The Kiplinger Letter offers some interesting predictions from time to time on likely future trends. Most recently, positive comments on revival of the housing market if achieved, will help spark the economy. Single-family housing starts are predicted to increase by 19% over last year’s numbers while existing home sales are predicted to increase by 7%. Mortgage rates may bump up to 4.2%, but down payment requirements are likely to moderate and mortgage insurance premiums may decrease.

There is a significant U S Supreme Court case to be heard this month that could seriously damage the utility of Obama Care and be a tremendous burden to physicians, hospitals and health care consumers. It has to do with the legality of federal subsidies for people buying coverage on federal exchanges. Mandated coverage issues have made health insurance so expensive that many cannot afford the premiums. Should many individuals do without because of cost factors or should the flexibility over insurance plan designs be adjusted back to a form in which people could choose the coverage elements they desire in a plan structure reducing premium costs for many? What do you think?

We are seeing a great increase in the retired population for this country. By 2050, it is projected that 21.4% of the U S population will be over the age of 65. This dynamic will surely put additional pressures on those in the work force to increase productivity to drive economic growth and also stress government programs which the retired depend on such as Medicare and Social Security. The current population of retirees is finding it difficult to sustain cash flows representing their retirement income as a result of very low bond investment yields. The U S 10 year Treasury Bond which is a time-tested safe harbor standby is now yielding only 2% while other foreign government bond rates are bellow this level. The trend for global central banks to reduce benchmark interest rates to give incentive for borrowing to stimulate economic activity will further drive down yields on U S bonds since we are now at a comparatively attractive level with a safety factor which is still respected around the world. How long will this trend last and how do we grow the economy enough to get out of this trap? On the flip side of this issue, as interest rates increase in the future, U S Government debt service as a percent of the budget will grow to a level that is just not manageable. Political leaders must begin to address these trends. Those of us who are productive in the work force must continue our work ethic, manage cost of living with reason, save and invest wisely for the future and express to government the appropriate role to play in our society. The retired will no doubt need to involve the family structure in meeting their needs for support and care as they continue to mature in life.

For The Record:
DJIA 18,096.90
S & P 500 2,098.53
NASDAQ 4,967.14

Suggested Reading: “Business Law” By Clarkson, Miller, Jentz and Cross

By Edward Leone Jr. CFP RFC DMD MBA

Contact Information:
edleonedds@gmail.com 303-478-6793

Now that 2014 has concluded, we can examine the major equity market indices and their performance.
Dow Jones Industrial Average 7.50%
S&P 500 11.39%
NASDAQ 10.89%
I would suspect that the extreme volatility in equity markets for 2014 along with investors’ concerns over global economic and political issues have caused many portfolios to under perform these indices for 2014. The price changes for oil are another factor which may have many investors concerned about equity investment performance into the future. I do not have a crystal ball or the forces available to predict the near future. I urge everyone to be disciplined and plan long-term. According to a survey performed by the Journal of Financial Planning, 40% of Americans are not currently investing. 47% of small business owners identify the U.S. tax structure as the top issue impacting their business. Have you made any financial resolutions for 2015 and what are they?

It is important for those who chose to draw Social Security benefits before full retirement age to know that the annual earnings test for 2015 is $15,720. $2 of earnings over this amount yields $1 in benefit reduction. If the Social Security beneficiary will reach full retirement age in 2015, he or she may earn $41,880 from January through the end of the month before full retirement age is attained before any penalty is imposed. The penalty is $1 in benefit reduction for every $3 earned over $41,880. Earnings consist of gross wages earned and net earnings resulting from self employment. Another issue for many in this age group is the necessary understanding of Medicare enrollment periods. The initial enrollment period begins 3 months before the 65th birthday and ends 3 months after the 65th birthday. For those who do not meet this enrollment window, a special enrollment period which extends for 8 months after coverage resulting as a benefit of active employment ends for those who work and have coverage after the age of 65. There is also a general enrollment period for those who miss the above opportunities which extends from January 1st to March 31st each year. Beneficiaries may also adjust coverage in their Medicare programs during the open enrollment period which takes place from October 15th to December 7th each year. As you can see, there are many opportunities to take advantage of coverage under the Medicare program, but this can be complicated. Those who are under the age of 65 and disabled can also qualify for Medicare. It is my intent that the sharing of this information will help you and family members in dealing with these issues during this year.

I wish all readers a safe, healthy, happy and prosperous 2015. It will be very interesting to see what impact the changes in the complexion of the U.S. Congress may have on the country’s economy regarding influence of regulations and fiscal policy matters along with the dynamics of pending global issues.

For The Record:
DJIA 17,737.37
S&P500 2,044.81
NASDAQ 4,704.07

Suggested Reading “Tools and Techniques of Employee Benefit and Retirement Planning” by Leimberg

By Edward Leone Jr. CFP RFC DMD MBA   Contact Information: edleonedds@gmail.com 303-478-6793   A growing issue in estate planning function has to do with digital assets. What are digital assets? A digital asset is an electronic record as defined in the Uniform Fiduciary Access to Digital Assets Act of 2014. This legislation gives power to those charged with settling the estate of a decedent regarding the disposition of emails, texts, digital photos, online financial account information, passwords, blogs, websites etc. Do you have a plan for these assets? As technology becomes an even greater factor in our lives, these issues may become quite important. Another estate planning issue which is surfacing recently has to do with the disposition of an HSA account upon the passing of the account owner. Name a beneficiary. If that beneficiary is a spouse, the account remains an HSA. Under other circumstances the account may be terminated with the assets going to a non spouse beneficiary while being taxed as income to that individual.   A very interesting compilation of information contained in a recent AAII journal lists the top five mutual fund performers during the five year period from 2008 to 2013. They are as follows: Fidelity Sel Automotive, Buffalo Emerging Opp, Aegis Value, Matthew 25 and Fidelity Sel Multimedia (Sel stands for select). It will be interesting once the performance of these funds is reported for 2014, to see who remains on the list and which are removed. I’ll be reporting to you on this issue.   The Dow Theory News Letter lists five reasons explaining their prediction for market strength. These are as follows; Economic Growth (predicting GDP growth between 3 to 4 % for 2015), Interest Rates to remain low into 2015, Inflation to remain low (at or bellow 2%), Labor (although the unemployment rate is decreasing, it is still high by Federal Reserve standards) and consumer sentiment which is upbeat. Regarding interest rates, many investors have moved into REITs and MLPs to generate dividend and interest income. These investments have rich valuations as measured on the Dow Theory Alternative Income Watch List. Will we see a bubble here in the future?   Saving 15% of income on an annual basis to fund retirement is a popular rule of thumb. Individuals and families need to examine their personal factors such as: current income and required retirement income, projected longevity, age at retirement, expected investment rate of return and the inflation factor. Seek the help of a Certified Financial Planner in examining these issues and quantifying their meaning in your circumstance moving into your 2015 saving strategies. Will the Santa Clause rally in equity markets for 2014 sustain? This phenomenon is due to actively managed funds’ attempts to enhance annual performance at the last minute in part with the expectation that investors will follow the pattern. It has worked historically and is so far showing progress in December of 2014 even with the relatively soft global economic conditions and the significant drop in oil prices!! Good Luck!! For The Record: DJIA 17,804.80 NASDAQ 4,765.38 S&P 500 2,070.65 Suggested Reading: “FYI For Your Improvement” By Lombardo and Eichinger

By Edward Leone Jr. CFP RFC DMD MBA
Contact Information:
edleonedds@gmail.com 303-478-6793

It is clearly a challenging time for the global economy. Troubles in Japan, China, South America and Europe have many climbing the wall of worry and viewing the US economy as improving. The more I read about the theories of Maynard Keynes the better I understand what is going on here. He prescribes a temporary government intervention with both monetary and fiscal policy adjustment in difficult economic times. Many interpret his approach as monetary only and have prescribed those fixes with less than adequate results. Europe is a prime example along with Japan. Here in the US, the Federal Reserve has admitted that it is doing all that it can with the monetary measures at hand but is not getting help from the Congress and the Executive with fiscal policy adjustment. Perhaps now that the election is over, things will change regarding fiscal policy matters which relate to taxing policies.

Much has been touted regarding the ability for those over the age of 62 to tap home equity for living expenses by engaging a reverse mortgage. A new twist to this vehicle called HECM will allow the purchase of a residence for those over the age of 62 with 1/2 the purchase price as a down payment and utilizing a reverse mortgage to pay the rest of the price yielding no mortgage payment.
You may want to check it out.

The filing of tax returns for those who have used federal subsidies to purchase health insurance in 2014 as a result of the Affordable Care Act will be a bit complicated due to the imposition of form 8962 which will require reconciliation of subsidies received with credits actually granted by entitlements. Along with this, those who had no coverage will be required to complete a quite complicated form to figure their penalty tax.

For those who are subject to AMT, be careful in using deductions such as state income tax, property tax and many miscellaneous deductions against ordinary income tax since these items are added back to income in the calculation of AMT. Don’t out smart yourself. Use a CPA for expert help.

The US dollar is strengthening against many other foreign currencies. This will make travel abroad a little less expensive. The down side may be that US exports may become more expensive for international consumers.

For those who have a 401k plan which permits loans, consumer purchases which have to be financed may be entertaining a 401k loan to accomplish purchases. This strategy is a good one when consumer lending is at a high interest rate, but not in a low interest rate environment. Other sources of finance such as credit card debt or a home equity loan if available will have influence on the correct and most efficient approach to financing such purchases. The expected return on 401k portfolio investments is also a key factor here.

The AAII Journal did a great job with an article on how to avoid beneficiary designation mistakes. Such strategies as joint tenancy, payable on death and transfer on death have significant benefits in that they are will substitutes which avoid probate. There can be problems with these strategies related to the beneficiaries health and general status along with family issues. Assigning beneficiaries to life insurance policies is also a great way to avoid estate issues, but may require some thought regarding the status of those beneficiaries. Trust documents are another way to address potential estate issues. Not naming beneficiaries and contingent beneficiaries and updating these assignments along with a lack of understanding of actions and unintended consequences of such decisions may create conflict and hardship for family upon an individual’s passing. Buy the time of a skilled estate planning attorney to get things right.

For The Record:
DJIA 17,828.24
NASDAQ 4,791.63
S&P500 2,067.56

SUGGESTED READING: “Individual Tax Planning” by Mershon and Fevurly