Monthly Archives: August 2013

Making More of a Health Savings Account

Making More of a Health Savings Account
Why not stockpile pre-tax dollars to pay for future medical costs?

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BY GREG OLIVER

Too often, employees think of Health Savings Accounts (HSAs) as if they were simply deposit accounts. In reality, HSAs have much greater financial potential – and it shouldn’t be ignored, especially with health care costs rising so dramatically.

With an HSA, you don’t have to “use it or lose it”. An HSA lets you set aside money each year for qualified medical expenses. Any money you don’t withdraw from your HSA annually is allowed to accumulate. If you have self-only high-deductible health plan coverage, you can contribute up to $3,250 to HSA in 2013. If you have family high-deductible health plan coverage, you can contribute up to $6,450 to an HSA in 2013. As with IRAs, “catch-up” contributions are allowed – if you are 55 or older, you can put an additional $1,000 in your HSA beyond those limits.1

HSAs are similar to IRAs in another way – you can wait until next year’s federal tax deadline to make a contribution for this tax year, if desired. So you can wait to make your HSA contribution for 2013 until April 15, 2014. If you fail to be eligible during 2013, you can still make contributions, up until April 15, 2014, for the months you were an eligible individual. Your employer can even make contributions to your HSA between January 1 and April 15, 2014 that may be allocated to 2013.2

Who is eligible to have an HSA? You have to be enrolled in a high-deductible health plan, which may represent all or nearly all of your health insurance coverage. You can’t be claimed as a dependent on someone else’s federal tax return, and you can’t be enrolled in Medicare. Those are the criteria. (P.S.: Thanks to a special “last-month” rule, the IRS considers someone HSA-eligible for an entire year if that individual was on the first day of the last month of a tax year – that’s December 1 for the typical taxpayer.)2

HSA funds can also be invested. So given investment gains, ongoing contributions to your account and tax-advantaged compounding, your savings for future health care expenses have the potential to grow impressively.3

An HSA gives you a versatile automatic savings plan with striking tax breaks. The contributions to an HSA aren’t taxed by the IRS, since they are made with pre-tax dollars. Distributions usually aren’t taxed either, as long as they are used to pay for deductibles, co-payments and other qualified medical expenses. The IRS also refrains from taxing HSA earnings. This makes the HSA unique among retirement savings accounts.1,3,4

If you withdraw money from an HSA in retirement and don’t use it to pay for medical costs, the withdrawal is considered taxable income. Even so, your HSA potentially gives you another retirement income source. (If you make such a withdrawal before retirement, you will pay the resulting income tax plus a 20% penalty.)3,4

Interest in HSAs is rising. More and more employers are offering HSAs in tandem with HDHPs, and that may reduce premiums for businesses and employees. As CBS MoneyWatch columnist Ray Martin noted, firms and their workers may see premiums fall as much as 40% with a high-deductible, HSA-qualified plan versus the typical co-pay plan.1

A 2013 census released in June by America’s Health Insurance Plans (AHIP) showed 15.5 million Americans are now covered by HSAs – a 15% increase in just the past year, with HSA enrollment tripling in the last six years.5

Dollar cost averaging & an HSA. One convenient way to capitalize on the potential of your HSA account is through dollar cost averaging, a contribution method that has less chance of impacting your household budget than the commitment of a lump sum.

You may already practice dollar cost averaging when it comes to your retirement plan contributions. By contributing a fixed amount per pay period (an amount that your budget can handle), you have a steady and consistent flow of new money into the account that can be used to buy shares of whatever fund(s) you prefer. In a down market, you pick up more shares for your money as shares are worth a little less – the advantage being that when the market recovers, you will own more shares that will have increased in value.

In other words, it is wise to treat your HSA like an IRA or 401(k) and practice dollar cost averaging. Doing so today may allow you to accumulate quite a bit of money you can put toward medical costs tomorrow.

Why not get started on making the most of your HSA? Contact the representative of your employer’s plan today for more details on ways to contribute and invest HSA assets. When it comes to retirement and health care, it is always time to think ahead.

GREG OLIVER 72136712362716p`28716p8296p2`98163`89273`92

Citations.
1 – cbsnews.com/8301-505146_162-57498924/is-a-health-savings-account-right-for-you/ [8/23/12]
2 – irs.gov/publications/p969/ar02.html [2012]
3 – blogs.marketwatch.com/encore/2011/07/26/the-ins-and-outs-of-health-savings-accounts/ [7/26/12]
4 – forbes.com/sites/cfainstitute/2012/02/17/on-your-mark-get-set-save/ [2/17/12]
5 – ahip.org/News/Press-Room/2013/Health-Savings-Account-Enrollment-Reaches-15-5-Million.aspx [6/26/13]

OFS

August is National Make-a-Will Month

August is National Make-a-Will Month
BY GREG OLIVER

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NOTE : Where there’s a will, there’s a way … a way to make things easier for your family and friends upon your passing, a way to choose who inherits what from your estate, a way to name a guardian for your minor children should the need arise.

Do you have a last will? Many people don’t, and if they die without one in place, their assets will be distributed per state law rather than according to their wishes.

August is National Make-a-Will Month – a time to encourage people to take this important step in consideration of their loved ones. Today, is easier than ever to create a notarized (“self-proving”) last will and testament. A last will drafted with a lawyer’s counsel is an even better choice – an attorney well-versed in estate planning can explain the different types of wills and help you understand your options.

There’s nothing wrong with exercising a little will power … and giving yourself more power over the destiny of your wealth. If you haven’t made out a last will and testament, take advantage of the reminder provided by National Make-a-Will Month. Act now so that you can make things easier for your loved ones when the time comes.

What if Fannie & Freddie Went Away?

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How might things change for mortgage lenders & borrowers?

BY GREG OLIVER

Is a new home financing system ahead? In the text of a speech delivered August 6, President Obama said: “I believe that while our housing system must have a limited government role, private lending should be the backbone of the housing market.” This statement came as part of call for winding down Fannie Mae and Freddie Mac and revamping home financing in America.1,3

How might the playing field change? Right now, Fannie and Freddie backstop almost 90% of U.S. home loans. They are also $187.5 billion in debt to taxpayers, a result of the 2008 bailout that rescued them from the edge of insolvency. Two measures are already underway in Congress to replace both government-sponsored enterprises within the next few years.2,3

If a bipartisan bill introduced this spring by Sen. Bob Corker (R-TN) and Mark Warner (D-VA) becomes law, it would transfer lending risk over to private capital. The proposed legislation would require private lenders to assume the first 10% of losses on individual home loans, and stay sufficiently capitalized to counter major losses. A new federal agency – the Federal Mortgage Insurance Corporation, or FMIC – would regulate the mortgage industry and act to insure banks in a crisis. Just how would it be funded? A fee would be assessed on each mortgage issued. In the vision of the bill, the FMIC would pay for itself thanks to those fees and have enough left over to fund the construction of affordable multifamily properties and provide assistance to low-income homebuyers.2,3,4

Another bill written by House Financial Services Committee chairman Rep. Jeb Hensarling (R-TX) would terminate Fannie Mae and Freddie Mac without a replacement – the FHA would be the last remaining U.S. mortgage backstop. As Bloomberg notes, no House Democrats have emerged to support that bill – and as the Baltimore Sun notes, the bill drafted by Sens. Corker and Warner stands little chance of getting past the House. So it seems the playing field might be reshaped only after considerable compromise, and not in the short term.2,3

Aren’t Freddie & Fannie turning a profit now? Yes, but none of it is paying for their bailout. The GSEs have now returned more than $131 billion in dividends to the Treasury, but that money represents ROI for Uncle Sam. It doesn’t whittle away the $187.5 billion owed to taxpayers.3,5

What would happen to mortgage rates without Fannie & Freddie? They would almost certainly rise. Private lenders have little motivation to finance home loans the way the rules are now, and it would take significant incentives to bring them back into the market. As Moody’s Analytics chief economist Mark Zandi told CNBC, “[That] will mean higher mortgage rates. The question is how much higher.” In particular, first-time or lower-income homebuyers might find it tougher to qualify for a loan. (In one key respect, it has grown tougher: the average credit score for a Fannie and Freddie loan in 2012 was 756, compared to 720 in 2006.)4,6

Would the 30-year FRM become an endangered species? That is another concern. Without Fannie and Freddie around to guarantee home loans against defaults, the worry is that the standard American mortgage would become scarce. In many other nations, 30-year home loans are unconventional. The fear is that banks would address the default risks of 30-year mortgages by asking for larger down payments and demanding higher interest rates.2,4

True change will likely take a few years. It is hard to imagine Fannie and Freddie liquidating their portfolios and going out of business soon. Reform will probably proceed gradually – very gradually. President Obama’s call to unwind both GSEs and the recent proposals to replace them certainly amount to interesting food for thought.2

Citations.
1 – cbsnews.com/8301-250_162-57597284/wind-down-fannie-mae-freddie-mac-obama-says/ [8/6/13]
2 – baltimoresun.com/news/opinion/editorial/bs-ed-obama-housing-reform-20130808,0,5392371.story [8/8/13]
3 – sfgate.com/business/bloomberg/article/Obama-Says-Housing-Market-Still-Needs-Limited-4710318.php [8/6/13]
4 – csmonitor.com/Business/new-economy/2013/0808/If-Obama-eliminates-Fannie-Mae-Freddie-Mac-will-mortgage-rates-go-up [8/8/13]
5 – reuters.com/article/2013/08/08/us-usa-fanniemae-results-idUSBRE9770JL20130808 [8/8/13]
6 – tinyurl.com/mg2xxs4 [8/7/13]

R E T I R E M E N T I N S I G H T

…………..for fun

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R E T I R E M E N T I N S I G H T
BY Greg Oliver

MONTHLY NEWS AND INFORMATION FOR CURRENT AND FUTURE RETIREES

AUGUST, 2013

“I arise in the morning torn between a desire to improve the world and a desire to enjoy the world. This makes it hard to plan the day.”
- E. B. White

QUICK & HEALTHY
Citrus Twist Orange Roughy
3-5 Orange Roughy Filets
1/2 Cup Fresh Orange Juice
1/2 Cup Fresh Lemon Juice
1 Tbsp. Extra Virgin Olive Oil
1/2 Tsp. Lemon Pepper
1-2 Pinches of Dill

Use one large skillet. Set heat to “high” and heat olive oil for three minutes. Re-set heat to “medium” and add fish filets. Cook until fish is flakey (about five minutes). Lightly pour lemon and orange juices over the top of the filets as they cook, sprinkling dill and lemon pepper on last.

BRAIN TEASER
Anniversary of an Anniversary
July 1-6, 2013 marked the 100th anniversary of an anniversary gathering. The event was held in Pennsylvania and attended by over 50,000 men. What were they commemorating?*

DID YOU KNOW?
Online Shopping …
Before you pay, take a moment to compare online retailers to make sure you’re getting the best deal. Don’t forget to figure shipping costs into the equation. Before clicking “purchase”, check sites for coupons and special offers.

READY TO SELL THAT BUSINESS AND RETIRE?
Seriously thinking about it? You’re not alone. A survey conducted by Pepperdine University (with the help of two trade groups) indicates that retirement, not tax hikes, was the biggest contributor to business sales in Q4 2012 and Q1 2013.

If you are considering selling your company and retiring, consider these factors – they may help you make the most of the decision. One, give yourself enough lead time – three years to leave the business isn’t too long. You will gain time to try and maximize business value and refine your exit/succession strategy.

Some questions to answer: How attractive is your cash flow to an M&A firm, and can your EBITDA be improved? How competent are your managers? What recurring revenue streams do you have in place? Is your industry growing fast, or slowly? Is your business too reliant on a single customer, supplier or employee? How attractive and functional is its brick-and-mortar presence? Finally, what kind of value proposition are you offering? These are all key factors in valuation. Building a team of professional advisors is a key step toward planning a worthwhile outcome.1

AGING IN PLACE? THERE MAY BE AN APP FOR THAT.
Just about all of us would prefer to grow older at home, among family and friends. The good news is: the technology to support this desire is expanding. We have smartphone apps joining sensors and webcams in the effort to provide better home security and alert others in case of a fall or emergency. Medication monitors and disease management tools could come to your phone, tablet or PC soon.

IT veteran and futurist Laura Orlov, who publishes the Aging in Place Technology Watch newsletter, told U.S. News & World Report that what is now a $2 billion industry serving health care and seniors could expand into a $20 billion industry by 2020.2

ON THE BRIGHT SIDE
Following the lead of Standard & Poor’s, Moody’s Investors Service has upgraded the U.S. credit outlook from “negative” to “stable” and upheld America’s AAA credit rating.3

* TRIVIA ANSWER: Stumped? Contact me for the answer! CITATIONS: 1 – foxbusiness.com/personal-finance/2013/07/18/tips-for-boomers-read-to-sell-their-business-to-enter-retirement/ [7/18/13] 2 – money.usnews.com/money/blogs/the-best-life/2013/07/17/how-technology-will-support-an-aging-america [7/17/13] 3 – online.wsj.com/article/SB10001424127887323309404578614181019140610.html [7/18/13] oliver 67576547676 ohio 7687878698 ofs

Implications of Rising Mortgage Rates

Implications of Rising Mortgage Rates
Are they threatening the recovery? Or is their effect overstated?

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By GREG OLIVER

Between early May and mid-July, the average interest rate on the 30-year fixed-rate mortgage rose about 1%. Rates on 30-year FRMs have basically held steady since hitting a peak of 4.51% in Freddie Mac’s July 11 Primary Mortgage Market Survey – in the August 15 edition, they averaged 4.40% – but they could rise dramatically again.1,2

When mortgages become a bit costlier, things can get a bit tougher for home buyers, home sellers, home builders, real estate brokers, the construction industry, the labor market, the service industry and the broad economy. As housing’s comeback is a key factor in this current economic recovery, how worried should we be that home loans are growing more expensive?

Analysts are divided about the impact. A July Wall Street Journal poll of economists drew rather mixed opinions: 40.0% of respondents felt that more expensive mortgages “won’t have a noticeable effect” on the housing recovery, 35.6% thought that they “will slow sales” and 24.4% believed that they “will slow home-price gains.”1

So far, the lure of increasing home values appears to outweigh disappointment over pricier home loans. In the latest S&P/Case-Shiller Home Price Index (released at the end of July and covering the month of May), both the 10-city and 20-city composites showed the biggest year-over-year gain since 2006. Rising home prices (and rising stock prices) contribute greatly to the “wealth effect” felt by consumers. So there is a chance that a 100-basis-point rise in the 10-year Treasury yield (it hit 2.82% on August 15) and conventional mortgage rates may not do as much damage as feared. After all, both consumer confidence and consumer spending have improved even with a 2% hike in payroll taxes and this spring’s federal budget cuts.3,4,5

Maybe we haven’t seen it yet. The fundamental housing market indicators in our economy are lagging indicators, presenting statistics a month or more old. The Case-Shiller composite home price figures are based on three-month averages ending in the latest month of the index – in other words, the May survey reflected data from March, April and May, and May is when mortgage rates began their ascent.3

New home sales figures compiled by the Census Bureau must also be taken with a grain of salt. The pace of new home sales reached a five-year peak in May, but here is the asterisk: the Census Bureau actually measures new home sales in terms of signed sales contracts rather than closings. So a sizable percentage of those homes were not yet constructed, and the actual closing could have been months away. As it turns out, 36% of the signed sales contracts in May were for homes yet to be built – meaning they were in all probability three to nine months from completion, with most of the involved buyers unable to lock in mortgage rates in early May as they would have preferred.6

Which of two outcomes will occur? Summer home sales statistics may reflect more impact from higher mortgage rates. Perhaps they will communicate that the housing market is no longer red-hot, but reasonably healthy. The real estate industry, Wall Street and Main Street can all live with that.

The bigger question is whether consumer spending and GDP will keep improving as mortgage rates presumably keep rising. If the economy gathers or at least maintains momentum and the “wealth effect” continues to boost consumer morale, then the housing market should see sustained demand – a desirable outcome. If mortgage rates rise due to inflation (or some other factor unrelated to growth), then consumers may decide that costlier mortgages are simply too much of a stumbling block to home buying, gains in home values nonwithstanding.3

Two things can’t be denied. One, consumers have grown more optimistic recently (and wealthier, at least on paper). Two, home loans are still really cheap these days, at least by historical standards. Those two factors may maintain demand in the real estate market in the face of rising interest rates.

Citations.oliver 87968796p896896p986
1 – blogs.wsj.com/economics/2013/07/19/will-rising-mortgage-rates-halt-the-housing-rebound/ [7/19/13]
2 – freddiemac.com/pmms [8/15/13]
3 – forbes.com/sites/moneybuilder/2013/08/14/with-mortgage-rates-in-a-holding-pattern-what-will-housing-prices-do/ [8/14/13]
4 – nasdaq.com/article/how-we-know-the-federal-reserve-is-in-control-cm265615 [8/7/13]
5 – usatoday.com/story/money/markets/2013/08/15/stocks-thursday/2658439/ [8/15/13]
6 – realestate.aol.com/blog/2013/06/27/rising-mortgage-rates-impact-homebuilders/ [6/27/13]