June, 2008

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News Stories

5 Retirement Risks and How to Manage Them
Retiring can be risky business. The Society of Actuaries, a group of professionals who evaluate risk for a living, recently named inflation the top retirement concern among both retirees and people nearing retirement age, according to a survey released this week. About 57 percent of those already retired and 63 percent of those near retirement age said they were concerned that the value of their savings wouldn't keep pace with inflation, the telephone survey of 801 adults ages 45 to 80 found. The Society of Actuaries also offered advice for dealing with the top retirement risks. Here's a summary:
Inflation.
Between 1980 and 2007, U.S. inflation averaged 3.5 percent a year, ranging from 1.1 to 8.9 percent. And yet most retirees have only one source of inflation-adjusted income: Social Security. Time-tested strategies to beat inflation include investing in stocks and stock-based mutual funds, owning a home and other assets, holding TIPS (Treasury inflation-protected securities), buying annuity products that offer a cost-of-living adjustment, and delaying tapping your retirement assets for as long as possible.
Outliving your assets.
A 65-year-old American man can expect to live 17 years on average, while a woman the same age can expect to live 20 years. Fully 30 percent of women and 20 percent of men can expect to reach age 90. Defined-benefit pension plans, Social Security, investments that preserve principal, and deferred annuities that commence at high ages, such as 75 or 80, can all help protect assets.
Loss of a spouse. Women have longer life expectancies and tend to marry men who are older than them, so a widowhood period of 15 years or more is not uncommon. The death of a breadwinner spouse can trigger a dramatic decline in your standard of living. A single person requires nearly 80 percent of the income needed by a married couple, according to the Society of Actuaries. Yet the Social Security benefit paid to a survivor is typically only from 50 to 67 percent of what the couple received. Married couples can consider joint and survivor annuities and life insurance, plus strategies for maximizing their Social Security benefit.
Long-term care.
Long-term care options include home care, adult day care centers, assisted-living facilities, and nursing homes. What they have in common: They're all expensive. The cumulative cost of care may amount to $1 million for a couple, with nursing home costs reaching $70,000 annually. Long-term-care insurance can help pay for the cost of caring for disabled seniors.
Healthcare and medical expenses.
Nearly all retirees and those near retirement say they maintain a healthy lifestyle, and three quarters have or plan to have supplemental health coverage. But retirees need to be prepared for unexpected health problems, Medicare premiums, and the expenses that Medicare doesn't cover.
US News and World Report

8 Rules to Break to Build wealth
Being "upside down" is usually a negative term when applied to financial matters, but multimillionaire Robert Shemin believes that sort of thinking is ... well ... upside down. Shemin, author of "How Come That Idiot's Rich and I'm Not?" feels there are two positions when it comes to wealth: right side up and broke, or upside down and rich. Shemin prefers upside down. The best way to build and maintain wealth, maintains Shemin -- once considered the "least likely to succeed"-- is by breaking the rules you think and hear about when building wealth.
Following are eight rules worth breaking -- in upside-down order -- and what Shemin and other financial gurus have to say about them. Diverging from the traditional mind-set may put you on the right course to riches. 8 rules to break to get and stay wealthy 8. Avoid mistakes, learn before investing 7. Don't ask for help 6. Follow the path your advisers recommend 5. Don't invest in uncharted territory 4. Try to time the market 3. Have enough money or good credit to invest 2. Don't get into debt 1. Have a plan
Click here to read the explanation for each one.
bankrate.com in Yahoo Business

Leave Less to the IRS (and the Lawyers)
Why do you need an estate plan? It lets you accomplish these crucial objectives:

• Ensure that your assets go to the people you choose, not those the state chooses.
• Specify who will care for your minor children.
• Defuse potential family conflicts over your assets.
• Minimize estate taxes and other transfer taxes.
• Avoid the costs, publicity and delays of probate.
• Help ensure that you and your affairs will be taken care of as you wish if you become incapacitated.

Even if your estate is modest, take care of the basics:

• Tell loved ones where to find your documents and a list of your accounts, assets and insurance policies.
• Draft a will and final letter of instructions.
• Establish durable powers of attorney and health care in case you're incapacitated.
• Update your account titling and beneficiaries.
• Consider funding a revocable living trust with your titled assets along with a "pour-over" will to ensure other assets avoid a costly probate process.
  4/30/08 gather.com

How to 'restart' Social Security benefits
Can you really start over with Social Security? People who took Social Security payments early -- before their full retirement age -- can later opt to pay back their benefits and qualify for a higher payment based on their current age. You might want to consider "restarting" your Social Security if:

• You started payments before age 65
• You're now in your late 60s or early 70s
• You have the cash or investments on hand to pay back the benefits.

When you apply for Social Security before full retirement age, your benefit amount is reduced. If you delay your application for Social Security beyond full retirement age, though, your future benefit increases year by year until age 70.

If you do want to restart your benefits, begin by filling out SSA Form 521, "Request for Withdrawal of Application." You'll need to write the Social Security Administration a check for the full amount of the benefits you've already received. (Fortunately, Social Security doesn't charge interest, but you still could be coughing up quite a sum. Someone who's received an $1,800 monthly check for five years would owe $108,000.). However, there are estimates that "restarting" your Social Security benefits could increase your checks by as much as 76% if you applied at 62 and are now 70. Such a boost could represent a very good return on the money you'd have to "invest" or pay back to the Social Security Administration. But whether this makes sense for you depends on your individual circumstances, so speak with your financial advisor before deciding to go ahead.
5/2/08 LA Times

Immediate And Deferred Gift Annuity Rates Are Lowered
Having conducted its annual review, the ACGA Rates Committee recommended a new, lower schedule of gift annuity rates for immediate gift annuities, effective on July 1, 2008. In addition, the deferred gift annuity rates which became effective on July 1, 2006 will also be lower. At its April 2, 2008, meeting the ACGA board approved these recommendations.

One of the primary activities of the ACGA (American Council on Gift Annuities) is the publication of suggested charitable gift annuity rates for use by charities and their donors. The Council retains the services of an actuarial firm to advise and consult on matters pertaining to life expectancies and related matters. The Council has a long and distinguished record in this area, and its suggested rates have long been recognized, not only by charities and donors, but also by state insurance departments and the IRS as being actuarially sound and in the best interests of all parties involved.

Editor's note - The new rates will take effect 7/1/2008. Until then, the existing (higher) rates are still in effect. Most charitable organizations that issue gift annuity contracts will continue to use the existing rates through the end of June. If so, a gift annuity contract made prior to the end of June would have a higher rate for the life of the contract. If you are considering a charitable gift annuity, a decision prior to the change in rates would mean a greater annual return for the annuitant. The difference can be illustrated with the following examples of a single life rate:

Phishing Scams, Frivolous Arguments Top the 2008 "Dirty Dozen" Tax Scams
Topping this year's list of scams is phishing, which encompasses numerous Internet-based ploys to steal financial information from taxpayers. New to the "Dirty Dozen" this year is a scheme, which IRS auditors discovered, that relates to unreasonable and/or excessive fuel tax credit claims. Tax schemes can lead to problems for both scam artists and taxpayers. Tax return preparers and promoters also risk significant penalties, interest and possible criminal prosecution. The IRS urges taxpayers to avoid these common schemes:

1. Phishing Phishing is a tactic used by Internet-based thieves to trick unsuspecting victims into revealing personal information they can then use to access the victims' financial accounts.
2. Scams Related to the Economic Stimulus Payment Some scam artists are trying to trick individuals into revealing personal financial information that can be used to access their financial accounts by making promises relating to the economic stimulus payment, often called a "rebate."
3. Frivolous Arguments Promoters of frivolous schemes encourage people to make unreasonable and unfounded claims to avoid paying the taxes they owe.
4. Fuel Tax Credit Scams The IRS is receiving claims for the fuel tax credit that are unreasonable.
5. Hiding Income Offshore Individuals continue to try to avoid paying U.S.taxes by illegally hiding income in offshore bank and brokerage accounts or using offshore debit cards, credit cards, wire transfers, foreign trusts, employee leasing schemes, private annuities or life insurance plans.
6. Abusive Retirement Plans The IRS continues to uncover abuses in retirement plan arrangements, including Roth Individual Retirement Arrangements (IRAs).
7. Zero Wages Filing a phony wage- or income-related information return to replace a legitimate information return has been used as an illegal method to lower the amount of taxes owed.
8. False Claims for Refund and Requests for Abatement This scam involves a request for abatement of previously assessed tax using Form 843, "Claim for Refund and Request for Abatement."
9. Return Preparer Fraud Dishonest tax return preparers can cause many problems for taxpayers who fall victim to their schemes.
10. Disguised Corporate Ownership Some people are going as far as forming domestic shell corporations in certain states for the purpose of disguising the ownership of a business or financial activity.
11. Misuse of Trusts For years, unscrupulous promoters have urged taxpayers to transfer assets into trusts.
12. Abuse of Charitable Organizations and Deductions The IRS continues to observe the misuse of tax-exempt organizations.

IRS Watches Scams That Fall Off the List While the IRS has seen a decline in the occurrence of some of these scams, other problems, such as abuse of the American Indian Employment Credit and misuse of structured entity credits, continue to be areas of concern. The absence of a particular scheme from the Dirty Dozen should not be taken as an indication that the IRS is unaware of it or not taking steps to counter it.
3/13/08 IR 2008-41

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THE ECONOMY: SEVEN INDICATORS - From CNN Money (as of 6/24/08)

The Indicator	What It's Telling Us	Next Update
Consumer Confidence	Lowest level in 16 years	July 29
Retail sales	Strong retail sales boosted by rebate checks	July 10
Leading Economic Indicators	Rise for second straight month	July 17
Manufacturing Activity (ISM)	4th straight month of contraction	July 1
Industrial Production	Falls for second month in a row	July 16
Job Growth	Unemployment spikes higher	July 3
Inflation (CPI)	Higher than expected	July 11

Recent Economic News

Incomes get jolt from tax rebates - 6/27/08 MarketWatch
U.S. incomes, spending and savings surged in May after the government sent out $48 billion in tax rebate checks to stimulate the economy, the Commerce Department said Friday. Personal incomes rose 1.9% in May. when insurance payments from hurricane damage flooded into bank accounts. Real disposable incomes (after-taxes and adjusted for inflation) increased 5.3%. Excluding the impact of the rebates and inflation, real disposable incomes were flat. Consumer spending rose 0.8% in May. After adjusting for the 0.4% rise in consumer prices, real spending rose 0.4%, the most in nine months. Core inflation rose 0.1% in May and is up 2.1% in the past year.

Economy Still Growing (Slowly), But Stocks Slide - 6/26/08 Forbes.com
The U.S. Commerce Department revised its first-quarter GDP figure upward Thursday, but Wall Street still got off to a soft start. At 1.0%, the final read on first-quarter GDP growth was up slightly from the most recent estimate of 0.9%, but still indicated sluggish growth, a day after the Federal Reserve said downside risks to growth have diminished. The central bank held its federal funds rate at 2.0% Wednesday, halting what had been a run of seven consecutive rate cuts.

U.S. May existing-home sales rise 2% as expected - 6/26/08 Reuters.com and MarketWatch
Sales of previously owned U.S. homes rose in May and the glut of homes for sale shrank, but prices were off sharply from a year ago, suggesting the housing sector remains a big weight on the economy. Home sales, reported by a real estate trade group on Thursday, were slightly higher than economists had expected but they cautioned that it was far from a definitive sign that the downtrodden housing sector had turned a corner. Resales of U.S. houses and condos rose 2% to a seasonally adjusted annualized rate of 4.99 million in May from 4.89 million in April. It's the highest sales pace since February. Economists surveyed by MarketWatch expected sales to rise to 5 million.

New-home sales fall 2.5% in May to 512,000 pace - 6/25/08 MarketWatch
Sales of new U.S. single-family homes tumbled 2.5% in May to a seasonally adjusted annual rate of 512,000 as sales in the West fell to a 26-year low, the Commerce Department estimated Wednesday. The decline nearly matched economists' expectations for a decline to a 510,000 rate from April's revised 525,000. It was the lowest sales pace since the 501,000 rate in March. New-home sales were down 40.3% compared with a year earlier.

Flat demand for durable goods in May - 6/25/08 MarketWatch
Demand for U.S.-made durable goods was unchanged in May, as higher orders for airplanes and defense goods offset weaker sales of machinery and metals, the Commerce Department reported Wednesday. Excluding the 2.6% rise in transportation orders, orders for durable goods fell 0.9%, matching expectations in the market. Excluding the 10.9% rise in defense orders, total orders fell 0.6%. The overall report was stronger than the 1% decline in total orders forecast by economists surveyed by MarketWatch. Strong export growth has been keeping U.S. factories busier than they would normally be during a period of falling domestic demand.

Consumers Wary Over Economy, Reports Indicate - 6/24/08 NY Times
Economic reports released Tuesday offered another indication that Americans remain wary of the current state of the economy, as falling home prices and the rising cost of gasoline force many to make difficult spending choices. A consumer confidence survey, taken this month, recorded its worst reading in 16 years. The latest economic data underlined expectations that the central bank would not change its benchmark interest rate. The Conference Board, a private industry firm, said its consumer confidence index fell to 50.4 in June, down from 58.1 in May.

Four years of gains in home prices wiped out - 6/24/08 MarketWatch
Home prices across 20 major U.S. cities have dropped a record 15.3% in the past year and are now back to where they were in the summer of 2004, according to the Case-Shiller home price index released Tuesday by Standard & Poor's. Prices in the 20 cities are now down 17.8% from the peak two years ago. Prices were lower in April than they were a year earlier in all 20 of the major metropolitan areas as tracked by the Case-Shiller index.

Leading indicators rise for second straight month - 6/19/08 MarketWatch
While the economy is very weak, better times may be ahead, an economist with the Conference Board said Thursday on a report that the index of leading economic indicators rose slightly in May for a second straight month. The index, which attempts to forecast turning points in the economy, rose 0.1% in May, matching April's gain. "Latest data suggest the economy has not fallen into a contraction and may not undergo one in the second half of the year," said Ken Goldstein, labor economist at the Conference Board. "In fact, the economy might even begin to turn a corner early next year."

Why We're Gloomier Than The Economy - 6/18/08 Washington Post
Consumer confidence is at its lowest level in almost 30 years. Only 12 percent of Americans think the economy is in good shape. On the Internet, comparisons to the Great Depression are widespread. But the reality is different. According to most broad measures of how the economy is doing, it's not all that grim. So far, the economy is holding up better than it did during the last two recessions in 1990 and 2001. Employers haven't shed as many jobs, the unemployment rate is still relatively low, and gross domestic product has kept rising. Things are nowhere near as bad as they were in the Great Depression, or even during the severe recession of 1982-83. The last time consumers were this miserable, in May 1980, the jobless rate was 7.5 percent and inflation was 14.4 percent. Now those numbers are 5.5 percent and 4.2 percent respectively.

U.S. weekly initial jobless claims fall 5,000 to 381,000 - 6/19/08 MarketWatch Weekly
U.S. initial jobless claims dropped by 5,000 to 381,000 in the week ending June 14, a two-week low, the Labor Department reported Thursday. The four-week average of initial claims rose by 3,250 to 375,250. Continuing jobless claims fell to 3.06 million, the lowest since April, but still well above the year-ago level of 2.52 million.

Stagflation Nation - 6/17/08 Forbes.com
The downturn in the housing market and rising prices for most everything else are showing no sign of a turnaround, according to Tuesday's U.S. economic data, as wholesale inflation climbed in May while new-home construction dwindled. The conflicting reports added to the evidence that the American economy has entered a period of stagflation (A condition of slow economic growth and relatively high unemployment - a time of stagnation - accompanied by a rise in prices, or inflation according to ivestopedia.com), with recessionary and pricing pressures combining to squeeze consumers. The current situation seems to be handcuffing the Federal Reserve, which can neither raise rates to combat inflation without hurting growth prospects, nor lower them to aid the economy without hurting the dollar and putting upward pressure on prices.

Industrial production dips in May - 6/17/08 CNN Money
Output at nation's factories falls for second month in a row. Report falls short of economists' predictions. June 17, 2008: 9:28 AM EDT WASHINGTON (AP) -- Industrial production dipped in May, underscoring the strain on factories from the deep housing slump. The Federal Reserve reported Tuesday that output at the nation's factories, mines and utilities fell 0.2% in May, following a 0.7% decline in April. The latest report on manufacturing activity disappointed economists. They were forecasting a 0.1% rise in overall production.

Producer Prices Rise 1.4% in May - 6/17/08 NY Times
Businesses struggled with higher production costs last month, primarily as a result of record-high oil prices, meaning Americans may face more expensive items on store shelves soon. The Producer Price Index advanced 1.4 percent in May, its fastest pace in six months and another troubling sign that inflation is worsening, the government said Tuesday. Many economists, however, prefer to measure price increases in products other than energy and food. While this gauge, called the "core" index, does not measure the full effect of inflation on Americans, it does offer a guide to how long inflation might linger. For May, core producer prices rose at a tepid pace, 0.2 percent, in line with economists' expectations. From MarketWatch - Economists polled by MarketWatch had expected the PPI to rise 0.9%. In the past year, the PPI gained 7.2%, the government said. May's core PPI -- which excludes food and energy prices -- rose 0.2%, matching analysts' expectations.

Home builders index matches record low in June - 6/16/08 MarketWatch
U.S. home builders were as gloomy as ever in June, the National Association of Home Builders reported Monday. The housing market index fell by a point to 18, matching the record low in the 22-year history of the survey. The survey shows that about one in five builders thinks the housing market is good. The subindex for current sales also matched a record low in June, while measures of expected sales were stable. Traffic of prospective buyers fell in June.

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