Planning Perspective
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Bruce Doole
October 17th, 2011
Multigenerational IRA
What is a Multi-Generational IRA plan? A Multi-Generation IRA or “Stretch” IRA has administrative provisions allowing the non-spousal beneficiary or beneficiaries to continue tax-deferral of the account over the beneficiary’s life expectancy.
Recent IRA changes allow each beneficiary to establish a required minimum distribution plan based on his or her own life expectancy. These distributions must begin by December 31 of the year following the participant’s death. At any time, the beneficiary may elect to take a greater distribution than the minimum. The technique of passing an IRA from one generation to another involves proper elections by the plan participant and proper identification of beneficiaries. Beyond correctly identifying the beneficiaries, the trustee, custodian, or insurance company must have the systems for maintaining these accounts over long periods of time and the ability to administer this new opportunity in estate planning.
The Multi-Generational IRA plan is designed to allow for a much greater time period of tax deferral and compounding of earnings. Depending on the ages of the beneficiaries and/or rates of return, a stretch IRA can grow to many times the balance originally inherited. With a Multi-Generational IRA plan you can truly create financial security for your children or grandchildren. If you are interested in learning more about making your IRA a Multigenerational IRA, please call or email us.
Planning Perspective
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Bruce Doole
July 12th, 2011
Because inflation plays such a key factor in planning out your financial strategy due to its steady erosion of the purchasing power of your savings, I wanted to give you the half yearly update according to an expert, Morningstar’s director of economic analysis Robert Johnson, *“I think we’ve seen the worst of inflation,” who bases his view on what’s happening to commodities prices and on some developments in key components of the Consumer Price Index. Forget all that money the Federal Reserve has been printing and all the borrowing the U.S. Treasury has been doing and continues to do. Inflation, at least in the short term, has peaked. Central in Johnson’s thinking is the fall in domestic refined gasoline prices at the pump, down now from a high of $3.98/gal in April to $3.61 today, according to the AAA daily survey. That’s a 10% decline in a product that constitutes 5% of the Labor Department’s CPI. Also an important factor, says Johnson, are three major back-to-back declines in basic food prices over the past three months. “Basic food prices — for things like vegetables and fruits — have fallen 10%, 7% and 7% in the last three months,” he said. Adding to his confidence that the worse of inflation is behind the U.S. economy is an apparent tapering off of the disruption in auto manufacturing caused by the triple calamity in Japan this spring which made key parts for auto production such as on-board computers and certain paints nearly impossible to obtain. “Toyota’s car production went from 110-120,000 cars/month before the earthquake and tsunami down to a post-disaster 30,000 units,” Johnson said, “but now they’re back up to 90,000 cars.” He said that a shortage of cars — not just of Toyotas, but of almost all brands — had led to a sharp rise in prices for what, again, is a big piece of the CPI, with prices of new cars rising by 1% or more per month for several months. “That rise was because of a supply shortage,” he said, “and now that shortage seems to be ending. I think soon we’ll be seeing a return of incentives for car buyers.” In addition to declines in key parts of the CPI, such as food, cars and fuel, Johnson said there are other good reasons to think inflation pressures won’t return in the near term. “It doesn’t look like housing will explode on the upside again anytime soon,” he said, “though rents could rise.” Housing represents a whopping 40% of the CPI. “And we’re not likely to see wages rising either.” But what about all that government red ink? “Well, longer term, of course, you do have a lot of government debt, but then businesses have reduced their debt significantly since the financial crisis, and consumer debt is down a lot too, so there is a kind of compensating factor,” he said. For now though, Johnson thinks inflation is not a big concern, at least here in the U.S.
While this alleviates some of our short term concern, circumstances can change and we have to make sure your assets and the protection you’ve provided for them stay ahead of inflation. By factoring this into you financial plan we want to ensure that you do not lose purchasing power and your ability to maintain your current lifestyle over the long-term.
Unrest in the Middle East
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Bruce Doole
February 23rd, 2011
Given the events in the Middle East, we wanted to give you a brief update on our thoughts through the lens of a three-act play.
How the Three-Act Drama Unfolding in Egypt
May Affect Your Money
After 30 years in power, it took only 18 days to topple Egyptian President Hosni Mubarak. He capitulated to the demands of the protesters and resigned as President. Now comes the hard part.
Since the glory days of ancient Greece, we’ve had the three-act play. You know how it goes. Act I sets the stage, introduces the characters and identifies the main problem. Act II is the most important act because the main problem becomes much more dangerous and difficult and the protagonist of the story looks like they will lose. Act II usually ends on an emotionally-charged cliffhanger so you’ll be compelled to come back from intermission. Act III pulls it all together and the story wraps up with the protagonist (usually) winning and everybody (usually) living happily ever after. Ah, if only real life was so neat and tidy!
What’s happening in Egypt could follow this script—or not.
We’ve just completed Act I as the protesters were able to chase Mubarak out of office. Act II is now starting as the country tries to move toward a democratic society. However, with parliament dissolved, the constitution suspended and elections for a civilian government still about six months in the future, it could be rocky. As one of the protesters said in a Wall Street Journal article on the day of Mubarak’s resignation, “It’s easy to throw stones at the aggressor but it’s not easy to chart a new course. Our hard work begins tomorrow.” As today’s youth would say, “True that.”
While it’s too early to know the outcome of Act II or Act III, it may make sense to look at two potential extreme outcomes. These bookends give us a sense for a possible worst case and best case.
Extreme Outcome One
If Egypt is not able to pull a democracy together and internal squabbling spills into neighboring countries, it could be a serious problem for the world. The Middle East can be a powder keg and with its strategic importance in the oil market, any disruption there could send the world economy into a tailspin. Neighboring countries are also experiencing unrest among their people so the call for reform in the region is strong and certainly not over yet.
Extreme Outcome Two
On the positive side, the changes occurring in the Middle East could usher in a new era of democratic reforms that lead to faster economic growth and rising stock prices. Remember the fall of Eastern Europe’s Soviet satellite states and the toppling of the Berlin Wall in 1989? The decade that followed was a strong one for worldwide economic growth and stock prices. If the fall of Eastern Europe is a blueprint, then there could be some rocky, but survivable times ahead followed by a long period of growth.
The Impact of Technology and Social Media
One of the big differences between the fall of Eastern Europe’s dictators back in the late 1980s and the situation in the Middle East is the rise of the Internet, and, in particular, social media. The educated, Internet-savvy young adults who helped fuel the protests in Egypt reportedly used Twitter and Facebook to mobilize their followers. While the fax machine was the technology of choice back in 1989, the tools of today are exponentially more powerful.
Victor Hugo said, “An invasion of armies can be resisted, but not an idea whose time has come.” For the Middle East, that idea is political and economic freedom. Our interconnected world enables the far reaches of the globe to see how the politically free and economically prosperous countries enjoy a relatively high standard of living. The people in these emerging countries see it on TV. They read about it on the Internet. They travel to our country and become educated in our universities. They like what they see and now they want it for their home countries.
A few months ago, nobody was predicting the imminent downfall of Hosni Mubarak. His swift decline is another example of how we live in a “speeded up” world of instantaneous communication and a desire for immediate gratification. That potentially dangerous combination means the ultimate denouement of this unfolding drama is anybody’s guess.
As your advisor, though, we’re not in the guessing game. Instead, we are actively monitoring the start of Act II and its potential implications for your investments. Regardless of how this drama unfolds, we will do our best to try and meet your goals and objectives.
In the meantime, please let us know if you have any questions or concerns.
