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State Of The Union 2012: 3 Talking Points That Could Impact Your Finances
The State of the Union Address has long provided the President with the opportunity to present his legislative agenda and communicate policy objectives. The most recent Address was no exception. With election year politics in full swing and limited time with a captive audience, the President laid out a broad range of goals, hopes, and directives.
Taxes
President Obama proposed a tax rate of no less than 30% for anyone making over $1million dollars, while stating taxes should not go up for anyone making less than $250,000 per year. While the details of this plan remain unclear, most would agree that some level of tax reform could be beneficial. With the current level of political division in Washington it's difficult to imagine any type of meaningful reform could gain bipartisan support, at least in the near future.
Throughout 2011 most employees benefited from a 2% reduction in the social security tax withholding rate. This provided slightly larger pay checks for many. This tax reduction was set to expire at the end of 2011, but after much political bickering was extended through February 2012. This means another large-scale political battle is likely on the horizon about whether to extend this payroll tax cut beyond February. Without agreement on an extension, the social security tax rate for employees will return to 6.2%.
Housing
The housing market continues to drag on an economic recovery struggling for traction. With mortgage interest rates at historical lows, the President stated he is sending Congress a plan allowing every responsible homeowner a chance to refinance and save approximately $3,000 per year. The hope is this will free up money for homeowners and encourage them to remain in their homes. Potentially, this could help stabilize the market and boost confidence for weary homeowners and homebuyers. The concern for some is that because of the decline in home values many owe far more than what their homes are currently worth, a potential obstacle for refinancing.
Student Loan Interest Rates
We have heard a lot of talk lately about students burdened with mountains of student loan debt. The College Cost Reduction and Access Act of 2007 provided for annual reductions in the interest rate charged on new subsidized loans starting in school year 2008-09 and ending in 2011-2012. This act reduced the interest rate on subsidized loans originated in 2011-2012 to 3.4%. Currently, this is set to expire at the end of July 2012 which means the interest rate on subsidized student loans originated after July this year could see interest rates up to 6.8%. With the cost of a college education soaring, students and parents are relying more and more on loans to meet financial obligations. A significant increase in interest rates means more costs for an already costly higher education.
If history is any indicator we can look forward significant political debating regarding these issues and many others in the coming months. As we frequently remind our readers, have a plan based on your own financial needs and goals. Try to steer away from making decisions based on the latest headlines
Randy Schaller
Investment Adviser
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About Smart401k
Smart401k is a web-based investment adviser providing unbiased advice to help employees invest in their employer-sponsored retirement plans. Smart401k provides service to almost 11,000 clients who collectively have more than $1.5 billion in assets. Individuals receive personalized investment recommendations based on the funds in their plan and support of professional investment advisers available to answer all investment questions. Based in Overland Park, KS, Smart401k can be found at www.smart401k.com.
*Photo Credit Secretary of DefenseEmployer Match: Phenomenal Return-on-Investment
Photo Credit 401k
I've had several recent conversations about the lackluster performance we saw from most sectors last year.
Discussions start with someone expressing frustration about slow investment growth, and they devolve into a round of Twenty Questions about big returns.
In retirement investing, there will be up years, down years and flat years. I know it's easy to become frustrated like these folks. However, when you start to feel blinded by a hunger for big growth, I encourage you to read through this particular set of posts from the Smart401k blog rather than seeking information about the next big thing. And think about this investment:
The Match
What if there was one investment that could consistently deliver an outstanding return - an investment that wasn't dependent upon stock and bond returns? An investment like this does exist. It's right under the noses of 401(k) investors, and many don't take full advantage. The investment, of course, is your employer's matching contribution.
How else can you invest money out of every paycheck and have it instantly earn a 25%, 50% or even 100% return? All you have to do is ensure you're contributing enough to max out your employer's matching contribution.
There are a couple things to keep in mind:
(1) Understand the vesting schedule for your employer's contributions. Vesting refers to the amount of time you must work at a company before you have full ownership of employer contributions.
(2) In some cases, if you contribute a large portion of your pay for the first few months of the year then halt contributions for the remainder of the year, you may not receive the full match. Keeping your contributions consistent throughout the year ensures you don't reach the maximum allowable contribution before you've received all the matching funds your employer is willing to give.
(3) If you truly can't afford to max out your employer match, increase your contribution each year. A 1%-per-year increase, or even a fraction of a percent, means you're moving in the right direction. Increase your contribution by more when you get a raise.
So, during the flat years, take comfort knowing your company match is one truly great investment.
If you'd like to discuss matching contributions or general retirement planning, our adviser team is available at 877.627.8401 or info@smart401k.com.
Charlie Koch
Senior Investment Adviser
*The availability of an employer matching program does not guarantee that investments held in any particular employee retirement plan will be profitable.
Return to the Smart401k Blog homepage>>
About Smart401k
Smart401k is a web-based investment adviser providing unbiased advice to help employees invest in their employer-sponsored retirement plans. Smart401k provides service to almost 11,000 clients who collectively have more than $1.5 billion in assets. Individuals receive personalized investment recommendations based on the funds in their plan and support of professional investment advisers available to answer all investment questions. Based in Overland Park, KS, Smart401k can be found at www.smart401k.com.
5 Considerations for Migratory Retirees
Photo Credit Shazwan
Last week, after Kansas City received a dusting of snow, my 20-minute drive to work became an hour-long journey. I found myself dreaming of places where winter is defined by long-sleeve shirts rather than expedition-weight parkas.
I’m still a few decades away from retirement, but it’s never too soon to create retirement goals and use my 401(k) investment plan to reach them. Part of my retirement plan is to become a ‘snowbird’ and journey south for the winter. Since I know what I want to do, it’s easier to create a strategy to reach my goals.
Whether you’re already a snowbird, within a few years of starting your migratory lifestyle or just dreaming and strategizing, here are some things to consider as you do your financial planning:
Buy or Rent – Probably the biggest decision a snowbird has to make is whether to buy or rent. The real estate bubble hit snowbird destinations hard – think Florida, Arizona, Nevada and parts of California. Depressed prices create buying opportunities if, and only if, you can comfortably afford to purchase a second home.
If you rent, look for a furnished place so you won’t feel like you’re moving into a storage unit each year when you prepare to journey northward for the summer.
Property Upkeep – If you’re gone several months at a time, have someone look after your home(s). Take steps to avoid burglary and prevent your home from appearing vacant:
Update Your Address – Inform banks and credit card companies when you leave in order to avoid service interruptions. If a bank sees lots of out-of-state charges with no explanation, your accounts could be temporarily frozen.
Also, avoid missed payments and miscommunications by taking advantage of the Internet:
Bills – Your utility bills will be lower in your home-based property. But continue to budget for these items because it’s inadvisable to completely eliminate utility services for six months of the year (think burst pipes in the winter and mold in the summer). Also, check with your cable and Internet provider(s) to figure out whether you can suspend service during the months you’re gone without incurring major penalties.
Insurance – Inquire about the details of your health insurance policy to be sure you understand how it works when you’re out of your primary network. Some providers may have multi-state plans while others charge higher co-pays, deductibles and out-of-network fees.
If you leave a car behind when you head to your vacation home, you may be able to suspend or lower some of your coverage levels and save on expenses. Alternately, taking a car with you could mean changing the state of your coverage.
While the initial logistics may be stressful, I’ve never spoken to a snowbird who regrets the decision to leave cold winters behind. If you have experience being a snowbird, we’d love to hear your stories and advice. Please leave your comments below.
Joe McCulloch
Senior Investment Adviser
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About Smart401k
Smart401k is a web-based investment adviser providing unbiased advice to help employees invest in their employer-sponsored retirement plans. Smart401k provides service to almost 11,000 clients who collectively have more than $1.5 billion in assets. Individuals receive personalized investment recommendations based on the funds in their plan and support of professional investment advisers available to answer all investment questions. Based in Overland Park, KS, Smart401k can be found at www.smart401k.com.