Permanent Value

Week in Review 7/17/14

Bruce Doole
July 17th, 2014

Retirement Planning in the 21st Century

According to a recent Gallup poll, the greatest financial fear of nearly 60% of Americans is the possibility of running out of money during retirement.  62% of respondents of a separate survey indicated they would be willing to take a large cut in their take-home pay if it meant they would be eligible for a guaranteed retirement benefit.  However, we worry about having enough retirement income and savings to live out our “golden years” in comfort, but we hardly take the steps necessary to achieve substantial capital accumulation for use later in life.  The threat remains of outliving our money.

Social security is hardly the answer. Social security is seriously dwindling; therefore, saving must take place proactively before retirement, while a person is an earner and a producer of wealth. Annuities are a viable and increasingly popular option to provide a steady income stream through retirement, but the costs, lack of liquidity and complicated taxation issues can be disconcerting to many clients. 401(k), IRA and similar plans are attractive and another step in the right direction.  Those with access to employer sponsored retirement savings programs are gaining more understanding and more trust in placing higher levels of income into retirement accounts, and with more employers matching or adding contributions, these accounts have become among the strongest wealth savings tools available to employed persons across the United States.

However, we can’t completely count on market performance of retirement accounts and deferred annuities. If a disability occurs, the income earner might not be able to work nor receive an income.  Their regular 401(k) contributions would cease, and they may find it impossible to afford their annuity plan.  Any total debilitation would be a struggle to financially survive today as well as into traditional retirement years.

Without the protection of a comprehensive disability insurance package that mitigates a potential loss in income, the ability to effectively accumulate wealth and savings for use in the later years of life is diminished. Furthermore, the standard age of retirement for Americans is now 67, but disability insurance professionals are currently witnessing a dramatic increase in clients working well into their 70’s.


  • FOMC Minutes indicate that taper is on schedule and likely will end in October if the economy follows forecast.
  • Jobless claims have held steady, down slightly to a lower-than-expected 304,000.

Source: Petersen International Underwriters/ Ivy Funds

Week in Review 7/3/14

Bruce Doole
July 3rd, 2014

Lifetime Giving

As a general rule, it’s better to give away money during your lifetime than to leave it to your heirs after you pass away. There are numerous ways to give money to your loved ones gift-tax free while you’re alive—and even if your gift is taxable, at least the recipient can enjoy the gift’s full value while you pay the taxes on it. In contrast, if your estate is subject to the estate tax, those taxes will come directly out of what your loved ones would otherwise inherit.

Picture four quarters on the table in front of you. If you die with all four quarters and you’re in a 50% estate tax bracket (the current top rate is 40%, so 50% is not unimaginable), your heirs are left with two quarters and the federal government gets the other two.1 That’s the estate tax in action.

Now imagine a different scenario. You start with four quarters and move two quarters aside, representing a lifetime gift to your loved ones. Take one quarter and move it to the other side of the table as the gift tax you would owe.1 Your beneficiaries have as much as they did in the first scenario, and you’ve still got a quarter left!

Gifting provides a couple of added bonuses. For one, any future appreciation on the gift is in the hands of the beneficiary and outside your estate. Plus, you get to participate in the enjoyment of the gift while you’re still around.

Good options for minimizing taxes include giving away up to $14,000 per recipient per year gift-tax free, and making payments directly to medical and educational providers on behalf of loved ones.

However, if you have a large estate, your strategy might also include making taxable lifetime gifts utilizing the lifetime exemption—or more if your net worth is very high.

A couple of caveats:
Lifetime gifting can be a great strategy, as long as you leave yourself enough to live on. For the gift to count, it has to be irrevocable, ‘so be sure to plan carefully with the help of a professional.
If the estate tax is ever repealed, as it was for the 2010 tax year, you may regret having paid gift tax now in an effort to minimize your estate tax. You have to do the best you can, based on what you know now, within the context of your goals.


• PMI manufacturing is at 57.5 for June versus 56.4 in May.
• Total existing home sales rose 4.9% to a seasonally adjusted annual rate of 4.89 million in May from an upwardly-revised 4.66 million in April.
• New home sales jumped 18.6% last month following a 3.7% increase in April.
• Consumer confidence moved to 85.2 in June versus a revised 82.2 in May. This is the fourth straight month that the index is over the 80 barrier.
• U.S. economy shrank by a 2.9% annual pace in the first quarter instead of 1% as previously reported, marking the biggest decline since early 2009.
• Durables goods orders fell 1.0% in May after rising 0.8% in April.
• Jobless claims declined by 2,000 to 312,000 in the week ended June 21.


Source: Charles Schwab/ Ivy Funds

Week in Review 6/26/14

Bruce Doole
June 26th, 2014

Inflation Viewed From Three Sides

Inflation should be viewed from three sides: commodities; the slow and steady environment driven by policy and wages; and volatility. A portfolio can be protected against spikes in energy prices, by buying energy: “You’ve got to own the thing that’s inflating.” For slow and steady hedges, owning real estate is important, especially as a long-term hold. And for volatility, instruments such as TIPS are particularly useful.

Taking that approach one step further is Hal Ratner, global head of research at Morningstar Investment Management. Because the inflation rate is merely an average based on a basket of consumer prices, he says, each individual investor experiences inflation differently. “If somebody’s consumption is exactly that of the Consumer Price Index, then it’s not a big issue,” he explains. “But for a person who’s retired or facing medical expenses, the CPI isn’t necessarily such a great measure.”

How to help these clients? Ratner recommends paying close attention to two vital factors: a client’s time horizon and his appetite for risk. These two factors often work hand in hand. For instance, a buy-and-hold strategy combines a long time horizon with a low level of risk. “In the long run, all asset classes keep up with inflation and do better than inflation,” Ratner says.

TIPS provide a good example. These bonds are benchmarked to the CPI, meaning their principal is adjusted to increase with inflation or decrease with deflation. For this reason, assuming some inflation, holding a TIP bond to maturity is a long-term, relatively low-risk plan. Most investors, however, are more concerned about inflation in the near term and may view TIPS as a short-term investment. But Ratner warns that the bond values can move “massively” down as well as up, so if your investment horizon is shorter term, TIPS may not be for you.


• Industrial production posted a strong 0.6% rebound in May after a 0.3% dip in April. The overall capacity utilization rate rose to 79.1% from 78.9%.
• The consumer price index jumped to a seasonally adjusted 0.4% last month following a 0.3% gain in April.
• Housing starts declined to an annual rate of 1 million units last month from 1.07 million in April.
• Jobless claims declined by 6,000 to 312,000 in the week ended June 14.

Source: Peter Krass, Financial Planning/ Ivy Funds