Month: November 2019

Addressing a large and unresolved issue that had pended since 2008, the Securities and Exchange Commission yesterday imposed new restrictions on money-market mutual funds. The rules will perform a sort of balancing act, reducing the risk of the $2.6 trillion industry, but keeping intact the prime utility of the product. Asset management companies, as well as the five-member SEC committee, have given the move mixed reviews, with two members of the latter voting against the new ruling.

The SEC Commission has approved rules that require institutional money market funds to implement floating share values and other restrictions, such as restricting withdrawals and imposing redemption fees of up to 2% if fund assets drop below prescribed levels.  The shares would float based on changes to NAV (changes to the underlying market value of the fund’s assets).  Currently, these funds have a fixed price of $1 per share.

The New Rules

Young businesswoman and businessman signing contract in office

According to Mary Jo White, SEC chairwoman, these rules “will reduce the risk of runs in money market funds and provide important new tools that will help further protect investors and the financial system.” She went on: “Together, this strong reform package will make our markets more resilient and enhance transparency and fairness of these products for America’s investors.”

Wall Street Positively Affected

(FILES) In this file photo taken on December 19, 2018 traders work on the floor at the closing bell of the Dow Industrial Average at the New York Stock Exchange. – Wall Street stocks pushed higher for a second session in a row on January 7, 2019, a sign of improved investor sentiment despite the ongoing US government shutdown and other economic headwinds. The Dow Jones Industrial Average ended 0.4 percent higher at 23,531.35, as the broad-based S&P 500 gained 0.7 percent to close at 2,549.69. (Photo by Bryan R. Smith / AFP)BRYAN R. SMITH/AFP/Getty Images

Wall Street seemed on the whole satisfied with the final results – which are a significant shift from the 2012 proposal. Then, former SEC Chairwoman Mary L. Schapiro wanted all funds to adopt the floating NAV practice or hold capital to absorb losses of any kind.

The rules were crafted in response to the 2008 financial crisis, when corporate lending markets seized up in response to a lack of liquidity.  The new restrictions will hopefully help maintain capital levels and keep markets operating smoothly during times of stress.

Individual Money Market Funds Not Affected

While the new floating share rules apply to institutional funds (both prime and tax exempt), they will not impact government and retail funds that are sold to individual investors. (Note that they will apply to institutional municipal money markets.)  However, provisions for liquidity fees and redemption gates do apply to all funds, both institutional and retail.

For a definition of government and retail money market funds, the SEC provides this detail via a press release on their website:

Government and Retail Money Market Funds – Government and retail money market funds would be allowed to continue using the amortized cost method and/or penny rounding method of pricing to seek to maintain a stable share price.  A government money market fund would be defined as any money market fund that invests 99.5 percent (formerly 80 percent) or more of its total assets in cash, government securities and/or repurchase agreements that are collateralized solely by government securities or cash.  A retail money market fund would be defined as a money market fund that has policies and procedures reasonably designed to limit all beneficial owners of the money market fund to natural persons.  A municipal (or tax-exempt) fund would be required to transact at a floating NAV unless the fund meets the definition of a retail money market fund, in which case it would be allowed to use the amortized cost method and/or penny rounding method of pricing to seek to maintain a stable share price.

One way this might affect individuals, is if they invest in institutional money market funds through their 401K.  It is likely that most retirement plans will choose retail money market funds as a plan option for this reason.  This will affect small and large businesses that use these accounts as short term funding for their day to day and week to week operations.

The new rules will not go into effect immediately.  Fund companies have two years to comply with the new restrictions.

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Do you ever thought that your medical check up will change? I think, we all do and of course government has done it. They have tried to make some solutions. Health insurance has been made by government also private insurance company. And you can choose what is suit for you.

According to the Center for Medicare and Medicaid services, 70% of people over 65 will need long term care support at some point. Since health insurance and Medisupp policies do not pay for long term custodial care (Medicare only pays for up to 100 days of care in a skilled nursing facility), it is important that you have a plan to fund these costs, which can be exorbitant. You can choose to self-fund by spending your own assets or purchase a long term care policy. A less desirable option would be to rely on family members.

Is Medicaid The Solution?

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Many people also incorrectly believe that they can rely on the government through Medicaid to take care of them should they require long term care. Unfortunately, this option is also not favorable. In order to qualify for Medicaid eligibility, a patient must demonstrate that they have very little income and limited assets.  This will occur once they spend down almost all of their cash and investments. If they have a spouse, he or she will be left destitute. In addition, the Medicare facilities that are available in your state, may not be ideally located cost to family members nor provide the quality care you desire.

In order to gain some insight into the potential cost for care, Genworth publishes an annual cost study.

Given the above costs and the average length of a long term care event (3 years), a 65 year old couple from SC will need roughly $180,000 in extra assets now to fund the possibility that one of them will need nursing home care. This assumes 6% rate or return and 5% LTC inflation.

Baby Boomers Age Need More

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As the Baby Boomers age, we will see an epidemic of dementia patients. According to a recent article in Investment News, one out of ten men and one out of five women will suffer from some form of dementia. Furthermore, half of individuals over 85 are at risk of developing Alzheimer’s.  Future medical advances may help reduce the risk, but at this point, there is no cure for Alzheimer’s. It is also much harder to care for an Alzheimer’s patient and can require 24 hour nursing care in the latter stages of the disease.

Although we don’t want to talk about being old and fragile and we don’t believe we will ever be infirm, it is important to have this discussion with our spouse or family members in order to determine the best plan, if and when we do need care.

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It is not easy to live in this life diffrent from many people. Especially if it about tradition, including how you spent your money on holiday. With the holiday shopping season well underway, the spirit of giving to family, friends and just causes comes with a high cost.

According to creditcards.com, the total U.S. consumer debt stands at $2.43 trillion for 2019, and falling into debt during the holidays is a reality for many. In fact, the National Retail Federation found that Americans spent $52 billion on Black Friday shopping this year.

Beware of the phony debt collector…

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These days, falling behind on some bills is the new normal since so many people are juggling unemployment checks or part time salaries. But that opens the door for fake collectors to scam people out of credit card numbers and bank account information. According to the Fair Debt Collection Practices Act, a debt collector cannot threaten arrest, call you after 9 p.m., at your place of work or contact others regarding your debt. If so, that person may very well be a scam artist.

Don’t be ‘naughty’ with your credit cards…

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Credit cards can be useful tools for consumers, but you have to be careful not to abuse them during the holiday season. They can spell a quick slide into unmanageable debt if misused. Creditcards.com reported that the average credit card debt per household was $15,799 and the average annual percentage rate on credit card with a balance on it was 13.10 percent, as of May 2019

Have no fear; help is on the way…

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Not paying off debt can have other consequences besides having to dole out extra cash due to a high interest rate. A lowered credit score can affect your ability to snag a great deal on your next car, appliance, home or other purchases – or may prevent you from obtaining future credit altogether. According to the Consumer Financial Protection Bureau, 70% of consumers surveyed say they have noticed new credit card disclosures on their bills. But fewer than one-third say this caused them to make bigger payments or stop charging up their cards.

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The South Carolina Future Scholar 529 plan is an excellent way for parents to save for college, but there are some important rules to understand in order to ensure that you make only “qualifying “ distributions, so that you don’t have a surprise tax liability.

Time Distribution

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First and most importantly, make sure that you time distributions to coincide with expenses paid. The regulations are such that money not spent within a calendar year that it is withdrawn may be subject to taxes and penalties.

For example, say Pete Sr. receives Pete Jr.’s college bill in late November of 2013 for $10,000 for the Spring semester that starts January 15th, 2014. He decides to pay the bill in December, but with the hectic holiday schedule he forgets to withdraw the 529 funds in 2013. Instead, he requests the 529 distribution in 2014. His expenses don’t match the withdrawals for 2013 or for 2014. He will not be able to claim the distribution for the 2013 as it was disbursed in 2014 and the 2014 distributions will also not be qualified, as the expenses were paid in 2013. So if $10,000 was disbursed in 2014 and $3,000 of that was earnings*, the $3,000 would be taxable and a 10% penalty would be assessed.

Reimbursement Are Qualified

Second, you want to make sure that the expenses you are seeking reimbursement for are qualified and are net of any scholarships or other tax credits. Qualified expenses include tuition, books, and mandatory fees and supplies in conjunction with enrollment in all eligible institution. The student must also attend school at least halftime.

Say Mary Alice attends USC full time and her tuition, books, room and board are $10,000 a year for one semester. She also, however, receives $2,000 of scholarships a semester. Her parents should only withdraw $8,000, not $10,000.

Rent Is Consistent

Note: Rent for off-campus apartments is qualified as long as the rent is consistent with on campus housing. If a student prefers cooking in her apartment instead of the cafeteria, she can get reimbursed for meals as long as the expenses are in line with the school’s cafeteria plan charges. She will also want to keep receipts for any food and dining expenditures in case of an audit.

Any taxable distributions are subject to a 10% penalty, but there are exceptions. The 10% penalty will not be assessed if the distribution is due to a death or disability. A more common exception is that no penalty is assessed on any tax-free scholarships or fellowships. So, although the earnings portion of any distribution will be taxed, the penalty will be waived for an amount equivalent to scholarships or grants received by the student.

So from the example with Mary Alice above, she will pay taxes on the $2,000 of earnings if her parents withdraw the full $10,000, but no penalty will be incurred.

*you don’t pay taxes or penalties on contributions, as they were already taxed. 529 contributions are made with post tax dollars.

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One of the most important aspects of retirement is traveling. It is a number one priority for most of my clients and they often have very ambitious plans. As part of my exercise to better understand client bucket lists and goals I have them list the things they want to see, do, and experience before they die.

Some common responses include travel to all the continents, visit all of the state parks in the US, spend a month each year in Europe, and travel in an RV around the country. Some of the more exotic destinations that they want to explore are Bora Bora, Fiji, and the Galapagos islands.

As people prepare for retirement, they need to put together a realistic assessment and estimate of annual travel costs. Travel expenses of $20K a year have a far different impact on your yearly cash flow than $7K a year—and cash flow is king in retirement! A $10K increase in spending can make a huge difference in whether or not you will outlive your funds during your lifetime. Thus, it is essential to be realistic about your goals, but also to try to save money on your travel pursuits. Here are some tips and considerations for cutting your travel costs.

First, determine how you will travel in retirement. 

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Will you go on a large overseas trip every three years with domestic travel in the off years?  How many trips will you go on each year and for how long?  Do you prefer several trips that span a long 4 day weekend or one large ten day trip?  Would you rather have a second home in retirement and primarily travel to and from both locations, forgoing any additional travel?  How much of your travel budget will be designated for visiting your children and grandchildren?  Can you stay with family or friends when you travel to save money?

Use the information above to budget what your anticipated annual costs will be in retirement. You can look at your current travel spending and adjust your budget up accordingly based on your plans. If you spend roughly $7,000 a year in travel and expect to double that in retirement your budget would be at least $14,000 a year.

Remember that as we age we may not be as able or willing to travel. You may want to decrease your budget in your 80s and possibly assume that no major travel will be necessary in your 90s. This enables you to “front load” your travel plans in the early years of retirement.

Regarding cutting costs, if you and your spouse or partner are both retired, you can travel at a moment’s notice and are generally more flexible regarding the times and dates. Considerable savings can be realized if you travel outside the peak time periods. Consider this when booking trips and flights.

Save Money on airfare

Use websites such as kayak.com and airfarewatchdog.com to comparison shop airfares and book either well in advance to lock in low rates or last minute to take advantage of timely deals.  If you tend to fly a specific airline for most of your flights, consider signing up for an annual pass to their lounge. This will provide you with a comfortable place to wait if your flights are delayed as well as provide you with complimentary snacks and beverages. Use a credit card that provides mileage bonuses or pays for baggage fees.

Save on accommodations

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One site that features high end resort properties at deep discounts is jetsetter.com. You can sign up for their newsletter to receive weekly deals. Cruise lines also offer special deals to previous travelers if they are under-booked, so make sure to get on their email list.

Another popular way to save serious money on accommodations is to house or apartment swap with someone else. If you want to explore that option, look into Homeexchange.com.

Airbnb.com also offers you lodging from private owners and has become popular in high rent cities such as New York and San Francisco.

Another interesting app called Hotel Tonight allows you go book unsold rooms last minute for that day at deeply discounted prices.

Of course never forget to use your AAA or AARP discount if you are a member, and research your hotels and other lodging at Tripadvisor.com. I find that the reviews are generally very accurate and can help you plan a trip that fits your tastes and your budget. You can even check out restaurant reviews to plan your meals.

Another fun planning tool is to create a board on Pinterest. You can add all of your desired destinations to one board or create a board for each trip.

Finally, don’t hesitate to use a travel agent or service that specializes in the destination you are interested in as they can often provide you with an insiders’ perspective and save your time and money.

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Perhaps, the word minimalism has become part of modern life today. Starting from the things in your home, even become one of the current home models. Modern minimalism is one of the words that you often find if you open a magazine or website about real estate you often get the word.

Start To Live Simple Life

Talking about the word minimalist, actually lifestyle can be included in that category. This time I will share my own life experiences that might be suitable to be called a minimalist modern lifestyle.

For a long time I have thought about giving away everything I own and starting over. Complete liquidation of assets — the creation of a tabula rasa for a capitalist system.

Living by only buying what I need

Somehow, I think you don’t miss the little things when you have nothing at all. “Boy, I sure would like to listen to my The Get Up Kids CD. Oh wait, I don’t have any CD’s.”

My parents really need to take this mentality to their refrigerator. Just throw everything away, for chrissake — the dead fruits and vegetables, the forgotten jars of relish and preserves. Begin again from square one: “I would like to have eggs and orange juice for breakfast tomorrow. I will go out and buy eggs and orange juice.”

Next day: “I would like to have hamburgers for dinner. I will go to the store and buy meat and bread and cheese and ketchup.” Then the next time you want hamburgers, you already have ketchup. When that bottle runs out, you go buy a new one, as opposed to having two already open and barren bottles somewhere in the fridge that nobody wants to use, coupled with the brand new bottle that was bought in ignorance of the first two (please tell me everyone else’s parents do this too).

Imagine approaching your entire life like this — “I need a car to get to work. I will go buy a car. Oh wait, I need clothes to wear to work. I will go to the mall and buy clothes.” Granted, you spend a few days walking around town hungry and naked until everything falls into place, but isn’t that a small price to play for a lifestyle of minimal possessions?

Just think about it-no more dozens of unworn T-shirts cluttering up your drawers. No more stacks of unread books and magazines. If you need something it’s there waiting for you. Otherwise, well, what good was it doing you anyway?

When I figure out how to get people to buy all the crap I have accumulated in two decades, you all will be the first to know.

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My son recently turned 18, so we transferred his UGMA (uniform gift to minors account) into his own name.  But with money comes responsibility.  I told him that he must now balance his checkbook and debit balance each month.  He replied in quintessential teenage speak that, “kids now just look everything up on line.  No need to write anything down, or keep a separate ledger. ”

I agree that the internet has revolutionized how we store and track data, making it easy and quick to transfer sums of money and review our monthly statements. But it has also contributed to less awareness of our overall spending patterns.  Credit and debit card expenditures also make spending seem more remote.  The further removed we are from our transactions, the less “real” they become.

Use Quicken

So I sat my son down and gave him a tutorial on the basics of personal financial accounting.  We downloaded Quicken on to his computer.  Whereas, the investment account that he has can be automatically downloaded from the mutual fund company to Quicken; the money market account could not, so we determined that he would manually enter those transactions. 

Checks Would Need To Be Entered Just After They Were Written

Checks would need to be entered just after they were written, but debit expenditures could be inputted by category once the monthly statement came in— (as long as he kept sufficient cash in the money market account to cover a few months of his expenditures).  He would be responsible for transferring money, as needed, from his investment account to the cash account (money market account).  

Having A Separate Accounting of The Checks

I stressed the importance of having a separate accounting of the checks to ensure that they were ultimately received and cashed.  He would then be able to determine which check was sent to whom and thus track them down as well as ensure that no checks went missing. (This would be tough to do if he never recorded the transaction anywhere).

His monthly debit charges were primarily comprised of three categories– food, gas, and flying.  My son got his pilot’s license last year, and has a passion for flying.  He belongs to a flying club at school and spends his own money on this expensive hobby.   As we began to add up the monthly totals for these categories, he mentioned that he might not want to know how much he spent on flying.  My comment to him was:  “That is exactly why you need to add it up.  It is of utmost importance that you understand where your money is going each month, so that you don’t blow through your entire savings.”

Spending Patterns Ensures A Sustainable Budget

This dovetails with my recommendation that all parents make their young adult kids pay for more expenses as they get older.  This enables them to slowly gain awareness of the cost of living and hopefully begin to budget for the future, when they have a full time job.  My son is responsible for a portion of his college costs, as well as his personal expenses including gas and car maintenance at college.  I give him an allotment for  food which, if he does not fully spend, can be used for other things.  The amount is less than what he would spend for a meal plan at school.

Once we went through the basics; it became clear to him that this monthly exercise would take no more than a few minutes.

This was our first lesson, and I will surely need to follow up monthly until the Quicken “training wheels” can come off; but my experience reminds me that the basics are not necessarily intuitive.  Making kids responsible for their expenses incentivizes them to get jobs and enables them to value their human capital and the money and quality of living that it can provide.  Additional time with our children to teach and  reinforce these skills, is key to their financial independence.

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It takes us years to build up our financial resources for retirement.  We target a monetary goal for retirement and invest accordingly, but what about our vision of retirement?  How do we make sure that we are on the same page with our spouse with regard to a common vision of our lifestyle in retirement?

study by Fidelity investments indicated that approximately 4 out of 10 couples not yet retired are in disagreement about their lifestyle in retirement.  One out of three disagreed about the overall vision of retirement.  

Establishing Common Goals

Upon retiring, many individuals experience depression and a sense of loss.  This can be overwhelming.  Action-packed days are suddenly replaced with leisurely weeks with nothing on the schedule.  Since we often derive our self-worth through our workplace accomplishments, we may experience a loss of identity.  Engaging socially with work peers is suddenly replaced with extra time with our spouse.   Conflicting goals between the two of you can result in additional stress and possibly harm your relationship.  Establishing common goals is essential to a fulfilling relationship during the retirement years.

Vision of Retirement

It is important to discuss your vision of retirement as a couple years prior to your anticipated retirement date. Schedule time to discuss your ideas about retirement and make this an ongoing conversation.  Be as specific as possible.  It is okay to change this vision over time.  Life is dynamic. Our hobbies, interests, and goals change with time.  This conversation, will at least help set expectations for retirement, so that there are no surprises.  You can both input and affect the ultimate decisions.   If you disagree, that is okay. You can negotiate issues over time in order to come up with a suitable workable solution that is amenable to both of you.

If couples don’t have these types of conversations, they may be suddenly thrust into the “second act” of their lives with conflicting opinions – which will only harbor resentment.

One helpful way to get started is to map out what a typical day, week, and month looks like during retirement.  Think about the following:

  • Will you both retire at the same time or stagger your retirement dates?
  • How much time will you allot to individual pursuits versus spending time together?
  • Will the two of you travel alone or will you schedule joint trips with friends?
  • How much time will spend with friends or hobbies and other activities that will not involve your partner?
  • Will you need “alone” time or time that is spent in solitude without your partner?
  • How active will you be?  How much time will you devote to exercise, kids and grandkids, travel, friends, volunteer work?
  • Will you consolidate homes or keep the vacation home and commute between both?
  • Do you want to downsize your homes and free up cash for traveling and renting homes for a month at a time around the world?
  • Do you want to live close to kids?
  • How much support will you be providing to kids and grandkids?
  • How do you plan on taking care of your spouse should he or she need long term care? How will you fund this?

Fleshing this out will have the added benefit of assisting you in determining your expenses in retirement. You can also work with a financial planner to address these softer, qualitative issues regarding your retirement lifestyle.  She can assist you in prioritizing goals as a couple as well as determining how it might impact your budget in retirement. Having a third party help you map out your future in a quantitative and qualitative fashion can be a valuable exercise.

The Result

Americans tend to procrastinate saving for the future and often avoid talking about the future. Planning for your retirement lifestyle will not only help motivate you to work hard to achieve your retirement goals – a clearer vision makes it seem more real – it will also result in improved harmony with your loved one.

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