OJOS11

Mid-Year Steps to Save on Your Taxes (Fidelity)

2017-06-29T10:02:00.002-04:00

Key takeaways

✔ Evaluate the tax impact of life changes such as a raise, a new job, marriage, divorce, a new baby, or a child going to college or leaving home.

✔ Check your withholding on your paycheck and estimated tax payments to avoid paying too much or too little.

✔ See if you can contribute more to your 401(k) or 403(b). It is one of the most effective ways to lower your current-year taxable income.

In the midst of your summer fun, taking time for a midyear tax checkup could yield rewards long after your vacation photos are buried deep in your Facebook feed.

Personal and financial events, such as getting married, sending a child off to college, or retiring, happen throughout the year and can have a big impact on your taxes. If you wait until the end of the year or next spring to factor those changes into your tax planning, it might be too late.

“Midyear is the perfect time to make sure you’re maximizing any potential tax benefit and reducing any additional tax liability that result from changes in your life,” says Gil Charney, director of the Tax Institute at H&R Block.

Here are 9 questions to answer to help you be prepared for any potential impacts on your tax return.

1. Did you get a raise or are you expecting one?

The amount of tax withheld from your paycheck should increase automatically along with your higher income. But if you’re working two jobs, have significant outside income (from investments or self-employment), or you and your spouse file a joint tax return, the raise could push you into a higher tax bracket that may not be accounted for in the Form W-4 on file with your employer. Even if you aren’t getting a raise, ensuring that your withholding lines up closely with your anticipated tax liability is smart tax planning. Use the IRS Withholding Calculator; then, if necessary, tell your employer you’d like to adjust your W-4.

Another thing to consider is using some of the additional income from your raise to increase your contribution to a 401(k) or similar qualified retirement plan. That way, you’re reducing your taxable income and saving more for retirement at the same time.

2. Is your income approaching the net investment income tax threshold?

If you’re a relatively high earner, check to see if you’re on track to surpass the net investment income tax (NIIT) threshold. The NIIT, often called the Medicare surtax, is a 3.8% levy on the lesser of net investment income or the excess of modified adjusted gross income (MAGI) above $200,000 for individuals, $250,000 for couples filing jointly, and $125,000 for spouses filing separately. In addition, taxpayers with earned income above these thresholds will owe another 0.9% in Medicare tax on top of the normal 2.9% that’s deducted from their paycheck.

If you think you might exceed the Medicare surtax threshold for 2017, you could consider strategies to defer earned income or shift some of your income-generating investments to tax-advantaged retirement accounts. These are smart strategies for taxpayers at almost every income level, but their tax-saving impact is even greater for those subject to the Medicare surtax.

3. Did you change jobs?

If you plan to open a rollover IRA with money from a former employer’s 401(k) or similar plan, or to transfer the money to a new employer’s plan, be careful how you handle the transaction. If you have the money paid directly to you, 20% will be withheld for taxes and, if you don’t deposit the money in the new plan or an IRA within 60 days, you may owe tax on the withdrawal, plus a 10% penalty if you’re under age 55.

4. Do you have a newborn or a child no longer living at home?

It’s time to plan ahead for the impact of claiming one more or less dependent on your tax return.

Consider adjusting your tax withholding if you have a newborn or if you adopt a child. With all the expenses associated with having a child, you don’t want to be giving the IRS more of your paycheck than you need to.

If your child is a full-time college student, you can generally continue to claim him or her as a dependent—and take the dependent exemption ($4,050 in 2017)—until your student turns 25. If your child isn’t a full-time student, you lose the deduction in the year he or she turns 19. Midyear is a good time to review your tax withholding accordingly.

5. Do you have a child starting college?

College tuition can be eye-popping, but at least you might have an opportunity for a tax break. There are several possibilities, including, if you qualify, the American Opportunity Tax Credit (AOTC). The AOTC can be worth up to $2,500 per undergraduate every year for four years. Different college-related credits and deductions have different rules, so it pays to look into which will work best for you.

Regardless of which tax break you use, here’s a critical consideration before you write that first tuition check: You can’t use the same qualified college expenses to calculate both your tax-free withdrawal from a 529 college savings plan and a federal tax break. In other words, if you pay the entire college bill with an untaxed 529 plan withdrawal, you probably won’t be eligible for a college tax credit or deduction.

6. Is your marital status changing?

Whether you’re getting married or divorced, the tax consequences can be significant. In the case of a marriage, you might be able to save on taxes by filing jointly. If that’s your intention, you should reevaluate your tax withholding rate on Form W-4, as previously described.

Getting divorced, on the other hand, may increase your tax liability as a single taxpayer. Again, revisiting your Form W-4 is in order, so you don’t end up with a big tax surprise in April. Also keep in mind that alimony you pay is a deduction, while alimony you receive is treated as income.

7. Are you saving as much as you can in tax-advantaged accounts?

OK, this isn’t a life-event question, but it can have a big tax impact. Contributing to a qualified retirement plan is one of the most effective ways to lower your current-year taxable income, and the sooner you bump up your contributions, the more tax savings you can accumulate. For 2017, you can contribute up to $18,000 to your 401(k) or 403(b). If you’re age 50 or older, you can make a “catch-up” contribution of as much as $6,000, for a maximum total contribution of $24,000. Self-employed individuals with a simplified employee pension (SEP) plan can contribute up to 25% of their compensation, to a maximum of $54,000 for 2017.

This year’s IRA contribution limits, for both traditional and Roth IRAs, are $5,500 per qualified taxpayer under age 50 and $6,500 for those age 50 and older. Traditional and Roth IRAs both have advantages, but keep in mind that only traditional IRA contributions can reduce your taxable income in the current year.

8. Are your taxable investments doing well?

If your investments are doing well and you have realized gains, now’s the time to start thinking about strategies that might help you reduce your tax liability. Tax-loss harvesting—timing the sale of losing investments to cancel out some of the tax liability from any realized gains—can be an effective strategy. The closer you get to the end of the year, the less time you’ll have to determine which investments you might want to sell, and to research where you might reinvest the cash to keep your portfolio in balance.

9. Are you getting ready to retire or reaching age 70½?

If you’re planning to retire this year, the retirement accounts you tap first and how much you withdraw can have a major impact on your taxes as well as how long your savings will last. A midyear tax checkup is a good time to start thinking about a tax-smart retirement income plan.

If you’ll be age 70½ this year, don’t forget that you may need to start taking a required minimum distribution (RMD) from your tax-deferred retirement accounts, although there are some exceptions. You generally have until April 1 of next year to take your first RMD, but, after that, the annual distribution must happen by December 31 if you want to avoid a steep penalty. So if you decide to wait to take your first RMD until next year, be aware that you’ll be paying tax on two annual distributions when you file your 2018 return.

No significant changes in your life situation or income?

Midyear is still a good time to think about taxes. You might look into ways you can save more toward retirement, gift money to your children and grandchildren to remove it from your estate, or manage your charitable giving to increase its tax benefits and value to beneficiaries. A little tax planning now can save a lot of headaches in April—and maybe for years to come.

Tax-smart investing: What order to take funds out in retirement? (Fidelity)

2017-05-11T07:35:00.000-04:00

Keys takeaways

✔ Understand the difference between taxable, tax-deferred, and tax-exempt accounts.

✔ Know which accounts to tap—and when—to maximize tax efficiency.

Chances are you contributed to a 401(k) or IRA as you saved for retirement. Now the time has come to use that money. Withdrawing from retirement savings accounts with an eye toward reducing taxes is important. Taxes can reduce income, and diminish potential future earnings and growth, which affects how long savings may last.

"The important thing to keep in mind is that managing withdrawals with taxes in mind can help boost income in retirement," explains Ken Hevert, senior vice president of retirement at Fidelity.

Let’s start by reviewing the types of investment accounts and then some tax-efficient ways to withdraw from them. Of course, everyone’s situation is unique, so it is important to consult a tax professional.

Three types of investment accounts

A typical retiree may have three types of accounts—taxable, tax-deferred, and tax-exempt. Each has an important, but different, role to play in helping manage tax exposure in retirement.

Taxable accounts like bank and brokerage accounts. Any earnings from these accounts, including interest, dividends, and realized capital gains, are generally taxed in the year they’re generated. In the case of capital gains, keep in mind that any increase in value of the accounts’ investments, such as mutual fund shares or an individual stock, isn’t a taxable event in itself. It’s only when an appreciated investment is sold that the gain is realized; i.e., it generates a taxable capital gain or loss. When you own a mutual fund, however, capital gains may be realized by the fund manager and distributed to you—often subjecting you to a tax liability—even if you haven’t sold your fund shares.
Tax-deferred accounts like traditional IRAs, 401(k)s, 403(b)s, or SEP IRAs. Most, or all, of contributions to these accounts were likely made "pretax." That means ordinary income tax on those contributions are owed when withdrawals are made in retirement. Any earnings from these accounts are also typically taxed as ordinary income when they’re withdrawn.
Tax-exempt accounts like Roth IRAs, Roth 401(k)s, and Roth 403(b)s. Contributions to these accounts are typically made with after-tax money. That means the contributions—and any earnings—are not taxable provided certain conditions are met.1

Manage withdrawals to help reduce taxes

The aim is to manage withdrawals to help reduce taxes, thereby maximizing the ability of remaining investments to grow tax efficiently.

The simplest, most basic withdrawal strategy is to use money from savings and retirement accounts in the order below, with one important caveat. For certain retirement accounts, if you are 70½ or older, required minimum distributions (RMDs) come first. For inherited qualified accounts like a traditional IRA, RMDs may come before age 70½, but the rules are complex, so be sure to check with a tax professional.

1.	Taxable accounts (brokerage accounts)

Money in taxable accounts is typically the least tax efficient of the three types. That’s why it usually makes sense to draw down the money in those accounts first, allowing qualified retirement accounts to potentially continue generating tax-deferred or tax-exempt earnings.

Investments may need to be sold when taking a withdrawal. Any growth, or appreciation, of the investment may be subject to capital gains tax. If you’ve held the investment for longer than a year, you’ll generally be taxed at long-term capital gains rates, which currently range from 0% to 20%, depending on your tax bracket (a 3.8% Medicare tax may also apply for high-income earners). Long-term capital gains rates are significantly lower than ordinary income tax rates, which in 2017 range from 10.0% to 39.6%. These are federal taxes; be aware that states may also impose taxes on your investments. (See your federal tax rate.) If you have a loss, you can use it to reduce up to $3,000 of your taxable income, or to offset any realized capital gains. Read Viewpoints "Five steps to help manage taxes on investment gains."

2.	Tax-deferred, such as traditional IRAs, 401(k)s, 403(b)s, and SEP IRAs.

You’ll have to pay ordinary income taxes when you withdraw pretax contributions and earnings from a tax-deferred retirement account, but at least these investments have had extra time to grow by taking withdrawals from a taxable account first. You may find yourself in a lower income tax bracket as you get older, so the total tax on your withdrawals could be less. On the other hand, if your withdrawals bump you into a higher tax bracket, you might want to consider taking withdrawals from tax-exempt accounts first. This can be complex, and it may be a good idea to consult a tax professional.

And remember, the IRS generally requires you to begin taking RMDs the year you turn 70½. For employer-sponsored accounts, like a traditional 401(k), you may be eligible to delay taking RMDs if you’re still working at the company and do not own 5% or more of the company or business. You cannot, however, delay starting RMDs for retirement accounts for employers you no longer work for. Read Viewpoints "Smart strategies for required distributions."

3.	Tax-exempt, such as Roth IRAs, Roth 401(k)s, and Roth 403(b)s.

Last in line for withdrawals is money in tax-exempt accounts. The longer these savings are untouched, the longer the potential for them to generate tax-free earnings. And withdrawals from these accounts generally won’t be subject to ordinary income tax. They’re totally tax free, as long as certain conditions are met.1

And leaving any Roth accounts untouched for as long as possible may have other significant benefits. For example, money for a large unexpected bill can be withdrawn from a Roth account to pay for a bill without triggering a tax liability (as long as certain conditions are met1). Qualified Roth withdrawals are not factored into adjusted gross income (AGI) because they are not taxable income. This may help reduce taxes on Social Security and other income because they don't bump up taxable income.

For Roth IRAs, it is important to note that RMDs are not required during the lifetime of the original owner, but for Roth 401(k)s and Roth 403(b)s, the original owners do have to take RMDs. That can be a good reason to consider rolling Roth 401(k)s and 403(b) accounts into Roth IRAs. Roth accounts can be effective estate-planning vehicles for those who wish to leave assets to their heirs. Any heirs who inherit them generally won’t owe federal income taxes on their distributions. On the other hand, Roth accounts are generally not an advantageous vehicle for charitable giving, so those involved in legacy planning may want to avoid the use of Roth accounts to the extent that this money is intended for charity. Be sure to consult an estate planner in either case.

Creating a plan

While the traditional withdrawal hierarchy of taxable, tax-deferred, and tax-exempt assets is a good starting point for many retirees, a person's situation and changing circumstances may mean making adjustments. That’s why it is important to have an overall retirement income plan and regularly revisit it and update it when necessary.

Suppose, for example, that a person's tax rate will be higher later in retirement than in the first few years. For instance, they move from a low-tax state to a high-tax state. If so, they might want to consider strategies where they pay taxes on their retirement savings earlier in retirement in order to potentially lower taxable income later. One way to do that, depending on a person's situation, would be to shift more of savings to a Roth IRA by converting a portion of a traditional IRA. Learn more about this in Viewpoints “Four tax-efficient strategies in retirement.”

Those who have a significant portion of investments in taxable accounts may be looking for ways to lower a tax bill on the earnings as they gradually draw down the principal to cover retirement living expenses. One consideration that might help is to invest the bond portion of taxable accounts in a diversified mix of municipal bonds, the earnings from which are generally exempt from federal income tax.

Another situation that many retirees experience when they begin withdrawing money from their traditional IRA or 401(k) is that the amount pushes them into a higher tax bracket. In that case, it might make sense to consider withdrawing from a tax-deferred account until taxable income nears the top of a tax bracket, and then tapping a Roth or other tax-exempt account for any additional income.

Those age 70½ or older might also consider making a qualified charitable distribution (QCD) to satisfy all, a portion of, or even an amount greater than an RMD—up to the IRS limits ($100,000 in 2017). Because the amount donated directly from an IRA to a qualified charity isn’t considered taxable income, this move can help avoid being pushed into a higher tax bracket. It can also be a very useful strategy for those whose high incomes result in phaseouts of itemized deductions. Be sure to consult a tax professional in such cases.

Other factors that could play a significant role in a retirement tax strategy are whether a person intends to continue working, the income tax rate in the state and locality where they plan to retire, and how much of an inheritance they would like to leave for family members or to a charity.

Know your situation

The keys to managing withdrawals from retirement accounts is to know your situation and tax exposure, to understand the basics of smart tax planning, and to consult a trusted professional to get the help you need in designing a tax-efficient retirement income plan.

You work long and hard to build retirement savings; smart tax planning can help keep your savings working for you.

How to Invest in a Rising Rate Environment (Morningstar)

2017-02-03T10:02:00.001-05:00

Libor Rising to the Occasion

By Emory Zink | 02-02-17 | 06:00 AM | Email Article

This article appears in the February 2017 issue of Morningstar FundInvestor.

The three-month London Interbank Offer Rate (Libor) surpassed 1 percentage point in early January 2017, a first since May 2009 for the widely referenced interest benchmark. The rate is derived by polling roughly 20 or so global banks on a daily basis for quotes of what they would charge other banks to borrow money for three months, dropping the outliers, and calculating an average. The result is used as a base rate for trillions of dollars in financial transactions and provides insight into liquidity and lending risk in the fixed-income markets. When Libor is higher, borrowing is more expensive, and when it is lower, funding is cheaper to access.

The 1% level may look modest, particularly given that Libor touched 5.7% in 2007, but relative to the rate’s post-financial crisis fate—it sat beneath 0.6% from June 2009 until nearly the end of 2015—its more recent ascent was notable. In 2016, it inched upwards, gaining momentum in the second half of the year as money market regulatory reforms hit full stride. The latter spurred many large investors to move assets out of prime money market funds with significant credit exposure into money markets composed of mostly government securities. Redemptions among prime money market funds trimmed demand for commercial paper and certificates of deposit, which in turn raised borrowing costs, and thus Libor’s levels. In fact, many ultrashort bond funds benefited from this structural adjustment, stepping in to snap up higher-yielding instruments at attractive prices leading up to and after the formal Oct. 14, 2016, date that money market reforms kicked in. The flexible PIMCO Short-Term (PTSHX) and more buttoned-up Fidelity Conservative Income Bond(FCONX) are two of our favored active ultrashort bond funds that have benefited from these market dislocations.

Bank loan investors have also benefited from the rise in three-month Libor. Minimum payouts for loans—typically referred to as floors—became ubiquitous after the rate plummeted during the financial crisis, and most floors stipulated that loans would continue to pay at least 1% plus a designated spread, even if Libor were to remain below that level. When three-month Libor rises and exceeds those 1% floors, though, as it did in early 2017, and loans began hitting their 90-day resets (typically) their coupons began floating higher to levels of Libor plus that additional yield premium built into each loan. Essentially, as Libor moved higher, floating-rate loans and notes based on that rate began to look more attractive.

The real question now is whether Libor will continue its climb. The U.S. Federal Reserve has hinted that it will likely gradually hike its own federal-funds rate in the coming months and years—Libor typically tracks that level closely during normal market conditions—which implies a trend of higher borrowing costs, if not necessarily a steep one. With prime money markets shrinking, ultrashort bond funds should likely continue to benefit by answering a healthy supply of commercial paper with selective demand, but there is no guarantee that supply won’t stagnate if borrowers seek less-costly forms of financing.

Perhaps even more important, though, is the impact that a rising Libor will have across an even broader expanse of financial markets given that most derivative transaction prices are linked to that rate, as well. It may seem like an obscure financial industry tool, but Libor is ultimately one of the most important rates affecting the entire global financial system.

Emory Zink is an analyst covering fixed-income strategies on Morningstar’s manager research team.

how to find better dividend paying stocks (motley fool)

2017-01-01T19:46:00.000-05:00

10 Highest Dividend Yielding Stocks

Lets put these high-yielding stocks to the test to determine if any are actually worth owning.

Brian Feroldi

Dec 31, 2016 at 1:08PM

IMAGE SOURCE: GETTY IMAGES.

One sound long-term investing strategy is to buy stocks that offer up high dividend yields.This strategy has become particularly enticing in today's low interest rate environment, since it offers investors a chance to generate a lot of income from their portfolio. However, just because a stock offers up a high yield doesn't make it an automatic buy, especially because sky-high yields are often accompanied by sky-high risks. Knowing that, lets take a look at the 10 highest yielding stocks from the S&P 500 to see if any of them are worth buying today. For simplicity's sake, we'll exclude all real estate investments trusts, or REITs, from this article since they play by their own set of rules.

Company	Ticker	Dividend Yield
Frontier Communications	(NASDAQ:FTR)	12.3%
CenturyLink	(NYSE:CTL)	9%
Seagate Technology	(NASDAQ:STX)	6.4%
Mattel	(NASDAQ:MAT)	5.4%
Staples	(NASDAQ:SPLS)	5.2%
Ford	(NYSE:F)	4.8%
Pitney Bowes	(NYSE:PBI)	4.8%
Entergy Corp.	(NYSE:ETR)	4.8%
FirstEnergy	(NYSE:FE)	4.6%
AT&T	(NYSE:T)	4.6%

DATA SOURCES: FINVIZ

Is the payout sustainable?

Most dividend investors know that a key metric for any dividend stock is the payout ratio, which is the percentage of a company's earnings that it uses to pay dividends. In general, a payout ratio over 85% is worrisome as it hints that the dividend could be on the chopping block if the company's earnings ever take a hit. A payout ratio greater than 100% means that the company is paying out more in dividends than it generates in net income.

Here's a look at the current payout ratio for each of these companies.

Company	Payout ratio
Frontier Communications	N/A
CenturyLink	127%
Seagate Technology	200%
Mattel	144%
Staples	54%
Ford	33%
Pitney Bowes	56%
Entergy Corp.	48%
FirstEnergy	51%
AT&T	82%

DATA SOURCES: YAHOO! FINANCE

Right away we can see that this metric removes several companies from contention. Frontier Communications isn't expected to be profitable this year, which is why it doesn't even have a payout ratio. That makes it an easy pass in my book.

CenturyLink, Seagate Technology, and Mattel all boast payout ratios well over 100%, which means their dividend payments currently exceeds their net income. That lets us remove them from consideration, too.

Just like that, our list of 10 has been cut down do 6.

Is the business growing?

The remaining companies all appear to offer up stable dividend payments, but even dividend investors also need to think about growth. After all, if a company's profits are stagnant or declining, its dividend isn't likely to be increased over time, making it a far less attractive investment.

Let's take a look at the projected profit growth rates of our remaining list of companies to see what analysts believe is going to happen over the next five years.

Company	Estimated 5 year growth rates
Staples	1.3%
Ford	1.5%
Pitney Bowes	4%
Entergy Corp.	(8.2%)
FirstEnergy	(5.1%)
AT&T	8.4%

DATA SOURCES: FINVIZ.

While Entergy and FirstEnergy are profitable and paying out solid dividends, Wall Street believes that both of these companies are about to see their profits head in the wrong direction. Those numbers tell me that we should look elsewhere for investment opportunities.

Staples is another company that should give investors pause. The company's business model is under attack from e-commerce companies like Amazon.com, which is a big reason why same store sales numbers have been in decline. To fight back, the company is closing down its under-performing stores and investing heavily in Staples.com, but those moves are going to take their toll on the company's profitability.

The markets also appear to be quite concerned with Ford's long-term prospects. That's likely owing to worries about peaking auto sales in North America -- a theory which, if true, suggest that the company's sales and profit margins are currently unsustainable. In addition, autonomous vehicles and ride-sharing services are both long-term opportunities and threats to the auto industry. Given those realities, it's not hard to understand why analysts are being cautions with their growth estimates.

For these reasons, conservative investors might want to consider removing both Ford and Staples from contention, too.

And then there were two

Pitney Bowes sailed through our first two tests with ease, but that doesn't mean that this is a risk-free stock. In fact, the markets have been punishing shareholders for more than two years as the company has been struggling with growth. Last quarter the company's earnings fell by more than 22% due to lower-than-expected license revenue, which is one of the company's most lucrative business lines. That caused the company to reign in its full year profit forecast. That's a troubling development that could suggest that analysts are over estimating this company's growth prospects.

AT&T, on the other hand, has a lot going for it. The company's wireless division continues to be a cash cow that is supporting by very low churn rates. AT&T also offers investors the potential for growth thanks to its recent purchase of DirecTV. Its pending merger with Time Warner could also be a big win for shareholders if it goes through. . Even if the deal falls through, AT&T should still be able to crank out consistent earnings growth, allowing it to retain its status as a dividend aristocrat.

So there you have it. This simple list of criteria shows that income investors would be wise to add AT&T to their watch list and largely ignore the rest.

how to become wealthy - straight talk (investopedia)

2016-12-30T12:18:00.006-05:00

Retire Wealthy: The Millennial March to $1,000,000

Today I want to teach members of the Millennial population how to retire wealthy, perhaps with at least a million dollars. It is vital that Millennials understand how to use the power of time in their financial march to a million.

The Government Accountability Office (GAO) recently reported on how Americans are doing when it comes to saving for retirement. Unfortunately, it was not good news.

The GAO analysis discovered that almost half of households with members age 55 or older, had no retirement savings in a 401(k) plan or IRA, and nearly 29% have neither retirement savings nor a traditional pension plan. In about half of the households with members age 65 and older, Social Security provides most of the income.

Social Security? Do you really want to live on $1,500 a month in your later years? Of course you don’t.
So what can a 25-year-old Millennial – maybe still in school, working part-time or working a low-paying job – do about it? Is buying a lotto ticket or marrying someone from a wealthy family your only hope for attaining wealth in your retirement years?

The Two Key Personality Traits

The answer is no.
But your Millennial march to a million bucks requires you to develop two difficult personality traits:
You need to have self-discipline and you need to have patience.

When I mention self-discipline I am referring to the ability to defer immediate gratification and instead to think first about saving and investing your money.
It’s recommended that you save 15% of every paycheck, no matter how small or large it may be. If your company has a 401 (k) plan with a company match, sign up immediately for it. It doesn’t mean you have to work there forever. When you leave your job, you can take the money you've saved with you. (See article: Money Habits of the Millennials.)

The amount the company matches is like a 100% return on your money.
Plus, investing in a 401 (k) plan will lower your taxable income because the 401 (k) money comes off your full paycheck amount, and then you are taxed on only the remaining money.

So the march-to-a-million plan necessitates that you invest first and then pay your bills.
Any money that is left afterward becomes your spendable income, or fun money.
Most young people do just the reverse.
They spend on fun first, pay bills (often late) and then they invest…..well, nothing, since there’s no money left after the first two activities.
Then at age 65 they wonder where all the money they earned over the years has gone.

Next is where patience comes into play. You won’t get rich overnight by investing 15% of your salary. The wealth-building process is a slow, gradual one that takes place over decades. It’s the proverbial tortoise beating the hare over the long run. (See article: How Gen Y Can Avoid Working Forever.)

Where to Put Your Money

But what should you invest your money in? How do you know you won’t lose all your money?

In order to succeed in investing, you must gain some knowledge. Go to the library or buy several books – and read online – about stocks, bonds, real estate, precious metals and mutual funds. Read everything you can until you feel confident in your ability to choose the right assets to create a diversified portfolio.

Diversification is important because often one asset class will go up when another goes down,

so being diversified keeps you from losing a large portion of your portfolio at any time.

Now about that discipline again. You must stay out of debt if you want to march to a million bucks
in your lifetime. Debt will keep you a slave to your job and poor throughout your life,
especially if it is debt that’s attached to depreciating items, such as cars, boats, computers, cell phones,
and other technology. Debt means paying out additional money in the form of interest.
Never finance a new car. There’s nothing wrong with buying a top-quality car that is 2-5 years old; by year five that new car has depreciated by more than 60% of its original price.

Save enough money to buy a modest first home.
Find one that costs even less than what the mortgage company will allow you to buy.
Many bargain-priced homes can be found on auction sites such as Auction.com.
If you do this, owning will be far cheaper than renting. Over time, your equity in the house will grow.
Live in a home for two years or more and you pay no taxes on the profit you make when you sell.

However, another strategy is to move into your new home, but keep your first home as a rental property. Over time, your tenants will pay down your mortgage in full and then you will create additional income for yourself in retirement.

I have had Millennials tell me,
“I don’t want to make sacrifices while I’m young just so I can have more money in old age.
I want to be able to go on vacation and buy a nice car and clothes now.
What if I don’t even live to an old age?”

The problem with this mode of thought is that it is impossible for a Millennial to experience life
as an elderly person until they get there, so they have little knowledge of how impoverishment
will feel when they are 80 or 90. Personally I feel
there is nothing sadder than watching an elderly person, after a lifetime of work,
digging through their pockets in the supermarket to find that 10-cents-off coupon.
There is no need to live that way if we plan ahead and have self-discipline and patience.

While I’m sure there are senior citizens who regret not having had more fun in their youth.
I’m also certain that a much larger percentage of them, who are living on nothing more than
Social Security fixed incomes, wish they had saved and invested more over their lifetime.

The Bottom Line

The choice is yours.
But the sooner you start, the sooner – and likelier – you will arrive at retirement with a million bucks!
(For related reading, see article: Retirement Planning the Millennial Way.)

Don't Make Costly Mistakes with your Required Minimum Withdrawals (Ed Slott in Financial Planning)

2016-12-01T16:48:00.000-05:00

Costly RMD aggregation mistakes

When it comes to taking required minimum distributions, the source matters.

Many clients have more than one retirement plan or account. When they reach age 70½ and have to start taking RMDs from their own, non-inherited accounts, the question arises as to which of these distributions can be combined and taken from just one plan.

Advisers and clients may think it doesn't matter which account makes the distribution, as long as the total calculated amount is taken from one of the accounts. They are wrong. There are specific rules for aggregating RMDs.

IRS rules state that an RMD should be calculated for each account separately. Then, where aggregation is allowed, those RMD amounts can be added together and the distribution can be taken in any proportion from one or more of the aggregated accounts.

It’s also important to remember that an RMD cannot be rolled over from any one account to another account, and the RMD is considered to be the first funds distributed from any retirement account during the year.

Thus, an IRA CD that comes due in March cannot be moved in its entirety as a 60-day rollover to another retirement account. The RMD amount must be subtracted from the amount that is subsequently rolled over.

The same is true when a distribution is made from an employer plan. All plan distributions are considered rollovers, even when they go directly from the plan to another retirement account.

Advisers must make sure the RMD is taken by clients. The new IRA custodian will not have any records of the RMD calculation, and will not have any automatic reminders for notifying anyone about the RMD in the year of the transfer.IRA RMDs can, however, be transferred from one account to another. A transfer is when the IRA funds go directly from one financial institution to another. The RMD can then be taken later in the year.

RMDs for one type of account can never be taken from a different type of account. For example, a 401(k) RMD cannot be taken from an IRA, and an IRA RMD cannot be taken from a 403(b). This is a very common mistake and must always be avoided.

IRA RULES
One of the benefits of IRAs is that RMDs for multiple IRA accounts can be aggregated. This includes SEP and SIMPLE IRA accounts. The RMD should be calculated for each account separately, but after that, the RMD amounts can then be added together and taken from any one or combination of accounts.

403(b) ACCOUNTS
A similar aggregation rule exists for 403(b) accounts. A client with more than one 403(b) account can calculate the RMD for each account and then add the RMDs together. The total can then be taken from one or a combination of 403(b) accounts.

EMPLOYER PLANS
RMDs from employer plans, not including 403(b) plans and SEP and SIMPLE IRAs, cannot be aggregated. A client with multiple 401(k), governmental 457(b) or other employer plans must calculate the RMD for each individual plan and take that RMD from that plan only.

There is no need to worry about whether or not Roth IRA RMDs can be consolidated, because Roth IRAs have no RMDs during the account owner’s life time. It can’t get much simpler than that.

Any plan making a series of substantially equal payments over a period of 10 years or more, or over life expectancy, cannot aggregate that payment with the RMDs from any other retirement account. The distribution from the account making these substantially equal payments is considered the RMD from that account only.

A PRACTICAL EXAMPLE:
Your client is approaching age 70½. He comes into your office to discuss his upcoming RMDs. Just as you asked him to, he brings in a list of all his retirement accounts. He has two old 401(k) accounts, an old Keogh account, three 403(b) accounts, four IRA accounts, a SEP IRA and two Roth IRA accounts. His plan is to add together all his RMD amounts and systematically take those distributions from his smallest accounts first.

Sounds like a great plan, right? Well, let’s take a look.

First things first – when you’re trying to figure out how many accounts a client needs to take an RMD from, you must first know how many different accounts you’re dealing with. In this case, we have 13 accounts.

Next, determine what type of accounts they are and how many there are of each type, keeping owned and inherited accounts separate. Make sure you have this information correct, because getting it wrong and missing a required distribution could subject your client to a 50% penalty for any missed RMDs.

Once you’ve got your information in order, you can start anywhere.

First of all, the client has two old 401(k) accounts. The RMD for each employer’s account must be calculated. Then he must take at least the total RMD amount for each 401(k) plan from that employer’s plan. He has two RMD distributions he must take, one from each 401(k) plan. These 401(k) RMDs cannot be combined with each other or with any other RMD distribution that he must take for the year.

There is one old Keogh account. The RMD for the Keogh account must be calculated and taken from there. It cannot be combined with any other RMD distribution for the year.

Next, the client has three 403(b) accounts. He must still calculate the RMD for each of the 403(b) accounts. But he can then add these together and take his total 403(b) RMD from any one or combination of the 403(b) accounts. The 403(b) RMDs must be taken from a 403(b) account.

He also has four IRA accounts at four different IRA custodians. He has a letter from each of them detailing what the RMD should be for each account. You should double check their computations. Your client can add these four RMDs together and take the total IRA RMD from any one or a combination of IRA accounts.

In addition to the four IRAs, the client has a SEP IRA. While a SEP IRA is considered an employer plan, it is also considered an IRA for RMD purposes. The client can calculate the SEP RMD and add it to the RMD amounts for his IRA accounts. The SEP IRA RMD can be taken from either the SEP account or any of the client’s other IRA accounts, but it cannot be taken from any other type of retirement account.

Remember how the client wanted to take only one RMD distribution? If we look back over what we have explained to him, we find that he must take at least five different RMD distributions.Finally, the client has two Roth IRA accounts. He can forget about these accounts – at least as far as RMDs go. Roth IRAs have no RMDs during the account owner’s lifetime.

WHAT HAPPENS WHEN A CLIENT GETS RMD AGGREGATION WRONG?
There are two potential penalties when clients make RMD aggregation mistakes: the penalty for excess contributions and the penalty for missed RMDs.

THE 6% PENALTY
RMDs that are rolled over to another retirement plan create an excess contribution in the receiving account, which must be corrected as soon as possible.

When an excess contribution is corrected by Oct. 15 of the year after the year for which the contribution was made, the amount of the excess, plus/minus gains/losses attributable to the amount of the excess contribution must be removed from the account as well.

Simply taking a distribution from the receiving account in the amount of the RMD later in the year does not correct this problem. The IRA custodian must be informed that the distribution is a return of an excess contribution. The coding on the 1099-R for the distribution will reflect that it is a return of an excess contribution. There will be no 6% penalty when the excess is corrected in a timely manner.

When the form is not filed, the statute of limitations does not start to run for the excess contribution. If the IRS discovers the problem at any later date, they can assess the penalty, plus interest, assess failure to file penalties, plus interest, and, if the amount is large enough, assess accuracy-related penalties, plus interest.Excess contributions that are not corrected are subject to a penalty of 6% per year for every year they remain in the account. Form 5329 should be filed with the IRA owner’s tax return to report the excess contribution and to calculate the 6% penalty. This form is considered a separate tax return, so it can be filed as a stand-alone return.

THE 50% PENALTY
When a distribution is taken from the wrong type of account, you have a missed RMD. For example, suppose a client accidently takes their 403(b) RMD from their IRA. This is against the rules. The client has a missed RMD in the 403(b). The penalty for a missed RMD is a steep one – it is 50% of the amount not taken.

It’s critical for advisers to understand which RMDs can be combined and which accounts must distribute their own RMDs, and to communicate this to their clients. There are too many mistakes made in this area, and incorrect advice often comes from the plan or custodian.Here’s the good news. The client can generally rectify this issue. First, they should immediately take the missed 403(b) RMD. Then, they should file Form 5329 to report the missed RMD and follow the instructions to request relief. Assuming the client can show reasonable cause for the mistake, there's a good chance the IRS will waive the 50% penalty.

Get Ready to Retire -- Straight Talk (Marketwatch)

2016-11-08T13:16:00.001-05:00

6 ways to keep your dream retirement on track

By Andrea Coombes

Published: Nov 7, 2016 11:53 a.m. ET

You may be ready to retire, but your money may not be

Are you a retirement “do-it-yourselfer,” convinced you can plan for your own retirement without paying for a financial adviser? That’s all well and good, but given that money managers work with people in a variety of financial situations, their experiences with the problems that prevent people from retiring can offer insights into how to overcome those challenges.

I spoke to a few experts to find out how they handle that difficult situation: a client who wants to retire but whose financial picture suggests she shouldn’t yet do so.

Ideally, of course, advisers want people to seek financial advice early on, years before they plan to retire. “Then we have the ability to help you work towards your goals over a period of time and make adjustments as things change,” said Nancy Skeans, managing director of personal financial services at Schneider Downs Wealth Management Advisors in Pittsburgh, Penn.

But sometimes people don’t show up at the adviser’s office until they’re eager to leave the workforce for good. In those cases, she said, advisers sometimes are forced to deliver bad news.

“We just had that situation with an individual and his wife,” Skeans said. “He’s thinking about retiring in two to three years. It was very obvious to me when I looked at his balance sheet, coupled with what I backed out as to their spending, that if they retired immediately they would put themselves into a precarious situation.”

One red flag was that this couple hadn’t accounted for their retirement tax bill. “All of their assets were in tax-deferred accounts,” Skeans said. “Every dollar they spend is going to be a dollar plus the taxes. That means, if you’re trying to support a standard of living after tax, you’re going to have to gross that money up.”

So, one lesson is to remember that the government is going to take a bite out of your retirement account. Here are more lessons financial advisers say they’ve been forced to teach new clients:

1. Be disciplined about a budget

In 2008, Skeans said, a client who was about 64 years old was laid off. “He decided he wasn’t going to look for other work,” she said. “We ran the projection. Obviously, at that point in time the portfolios were down because of the market and I was deeply concerned.

“Fortunately the guy was a finance guy, a controller for a small company. He heard us loud and clear that the biggest thing he and his wife needed to do was stay within a budget,” she said.

At the time, Skeans talked with the couple about how to stabilize their finances through reduced spending. “He was very adamant he did not want to go back to work,” she said. “We were able to help him and his wife structure a budget and they have stuck to it and continue to do so.”

And now? “Eight years later, their portfolio is just slightly below where it was eight years ago,” Skeans said.

2. Take a practice run

People sometimes underestimate what they’ll spend in retirement, especially in the early years when they suddenly find themselves with plenty of free time and energy, said Tripp Yates, a wealth strategist at Waddell & Associates in Memphis, Tenn.

“I’ve seen it where people do a budget for retirement and they tell me, ‘OK, we’ve done all the numbers and we can live off $50,000 a year,’” Yates said. Too often, that’s a bare-bones budget that doesn’t take into account travel and other activities. “The first five to 10 years of retirement, people are probably going to spend more rather than less, because they’re in fairly good health and want to enjoy that time,” he said.

One way to get a good handle on your spending is to test-run your retirement budget, he said. In one recent conversation with a couple, he told them: “Maybe one spouse who really wants to retire can. The other spouse continues working and maybe we take six months to a year and try to live on that budget, practice, see if it’s actually doable before both husband and wife call it retirement,” Yates said.

3. Don’t focus on the market

Given the media’s attention on the market’s every move, it’s no surprise that people seeking help from an adviser often fret about what happen next. That’s the wrong focus, said Robert Klein, president of the Retirement Income Center in Newport Beach, Calif. (Klein is also a writer for MarketWatch’s RetireMentor section.)

“People read so much in the media about performance and that’s naturally their focus until you show them on paper it’s all about your goals and planning for those and controlling what you can control,” he said. While investors must make sure their investments are diversified, there’s no way of knowing when the market might take another steep plunge.

“You have to control what you can control and develop prudent strategies that are going to work no matter what the market does,” Klein said.

4. Be clear about your goals

Retirement planning is about more than “just having X dollars in income,” Klein said. Figure out what you want retirement to look like, and then work from that. “It’s about a lifestyle in retirement. What are they going to be doing day-to-day in retirement?” he said. “Then you can focus on the finances: ‘What is it going to take so I can do that?’”

For some people, a hard look at a retirement lifestyle leads them to choose to work longer, Klein said. “A lot of people are better off working longer even if they can afford to retire. They just don’t have the hobbies. It’s a whole different routine when you retire,” he said. “Phased retirement is really good for a lot of those people, so they can take baby steps into retirement,” he added.

5. Use software that provides a picture

If you’re planning your own retirement, are you using financial software that will create projections as a chart? “Most people don’t communicate with numbers, they communicate pictorially,” said Kimberly Foss, founder of Empyrion Wealth Management Inc. in Roseville, Calif.

Foss said she shows clients a simple chart depicting how long their money is likely to last if they retire now. In some cases, she might produce a second chart that shows how spending less might make their outlook improve, and then talk with the client about options, such as downsizing the house or refinancing, working longer or delaying the purchase of a new car.

For one couple, seeing those pictures and having that discussion made all the difference, Foss said. They wanted to spend the same amount of money in retirement that they’d been spending while they worked, but the size of their savings account didn’t support that goal. So, they switched from the country club to a lower-cost health club, refinanced into a cheaper mortgage and started cooking at home more rather than eating out.

Reducing those costs and others preserved their portfolio for the long haul. Said Foss: “It created the income so that they could retire.”

6. Get real with your adult children

In some cases, people retire but unforeseen expenses put their financial security at risk. Skeans said one client unexpectedly found herself supporting her adult daughter and grandson, who live in her home, even as she herself recently entered a care facility.

“She’s taken out enormous amounts of money to help her daughter and grandson,” Skeans said. “She’s supporting their household and she’s paying the cost of assisted living. I said, ‘If you continue at this pace, this portfolio is going to be gone in five years.’”

Skeans said if the client sells her home—that is, asks her daughter to find her own place—that money would bolster her finances. “She should be able to make it and still leave something to this daughter in the end,” Skeans said. “She said, ‘I’m going to talk to my daughter about that.’”

death tax - what are the worst states (Kiplinger)

2016-11-07T11:25:00.005-05:00

10 States With the Scariest Death Taxes, 2016

Thinkstock

Federal estate taxes are no longer a problem for all but the extremely wealthy. In 2016, as much as $5.45 million in assets is exempt from federal estate taxes—double that for a married couple; in 2017, it will rise to $5.49 million.

However, state estate taxes, which kick in for estates valued at only $1.5 million or less in several states, could take a big bite out of your legacy. Your home and retirement accounts will be counted when your estate is valued for tax purposes, and proceeds from your life insurance could be counted, too, depending on how the policy is owned and who gets the money.

Fourteen states and the District of Columbia impose an estate tax, and six states impose an inheritance tax, which can force certain heirs to give up a portion of their inheritance. The good news is that a growing number of states are increasing their estate-tax exemptions in an effort to dissuade well-off retirees from moving to more tax-friendly jurisdictions.

Tennessee’s inheritance tax was eliminated in 2016, so it's no longer on our list. New Jersey will increase its estate tax exemption to $2 million in 2017; no longer the worst state for your estate, it now ranks fifth on our list here. The new least-friendly place to die? Take a look.

By SANDRA BLOCK, Senior Associate Editor | October 2016

States With the Scariest Death Taxes

10. New York

istockphoto

Exemption level before state estate tax kicks in: $4,187,500 for fiscal year 2016-2017

Estate tax rates: 5.6% - 16% (on estates valued at more than about $10 million)

Exempt from estate tax: Spouses only

Inheritance tax: No

The Empire State is gradually increasing its estate-tax exemption, and, as of January 1, 2019, it will match the federal threshold. But beware, because New York’s estate tax contains a very scary feature: if If your estate exceeds the threshold by 105%, the entire estate will be taxed.

States With the Scariest Death Taxes

9. Vermont

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Exemption level before state estate tax kicks in: $2,750,000

Estate tax rates: 9%-16%

Exempt from estate tax: Spouses only

Inheritance tax: No

Vermont's estate tax, along with steep income-tax rates, makes it particularly terrifying for wealthy people. The state is also number one on our list of least tax-friendly states for retirees.

States With the Scariest Death Taxes

8. Maryland

Thinkstock

Exemption level before state estate tax kicks in: $2 million in 2016; $3 million in 2017

Estate tax rates: 5.6% - 16% (on estates valued at about $10 million or more)

Exempt from estate tax: Spouses only

Inheritance tax: Yes

The Free State is gradually becoming a more tax-friendly place to die. Its estate-tax exemption will increase every year until 2019, when it will match the federal exemption.

States With the Scariest Death Taxes

7. Washington

istockphoto

Exemption level before state estate tax kicks in: $2 million

Estate tax rates: 15% - 19% (on estates valued at more than $9 million)

Exempt from estate tax: Spouses

Inheritance tax: No

The Evergreen State's estate tax rates are unusually high. But Washington offers an additional $2.5 million deduction for family-owned businesses valued at less than $6 million. Its estate tax exemption is indexed to inflation.

States With the Scariest Death Taxes

6. Connecticut

istockphoto

Exemption level before state estate tax kicks in: $2 million

State estate tax rates: 7.2% - 12% (on estates valued at about $10 million or more)

Exempt from estate tax: Spouses, civil-union partners

Inheritance tax: No

The Constitution State is the only state with a state gift tax on assets you give away while alive. You'll have to file Connecticut gift tax returns every year to identify any such gifts, but taxes are due (at rates ranging from 7.2% to 12%) only when the aggregate value of gifts made to any individual since 2005 exceeds $2 million.

States With the Scariest Death Taxes

5. New Jersey

istockphoto

Exemption level before state estate tax kicks in: $675,000 (but rising to $2 million on Jan. 1, 2017)

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1. New Jersey
2. Oregon
3. Massachusetts
4. Minnesota
5. Rhode Island
6. Maryland
7. Connecticut
8. Washington
9. New York
10. Vermont

The New Money Market Rules are Now in Effect (institutional investor)

2016-10-21T16:40:00.001-04:00

New Money Market Fund Rules Roil Investors

www.institutionalinvestor.com/Article/3595019/Asset-Management/New-Money-Market-Fund-Rules-Roil-Investors.html

Asset Management

October 20, 2016

Several prime money market funds have started trading above or below $1.00 NAV, just days after new rules were enacted. Investors are grappling with how to adjust to the new landscape.

By Julie Segal

After years of heated discussions between asset managers and regulators over money market reform, new rules took effect October 14 that, among other things, will allow the net asset value (NAV) of one share of an institutional prime money market fund to float, meaning it will move in line with the value of underlying holdings so investors buy and sell shares based on accurate prices. Asset managers argued that this did not mean that money market funds would break the buck that a share would drop below $1.00. That had historically been considered to be a nearly inconceivable occurrence at least, before it happened to one large fund in 2008.

But after the new rules had been in effect for one day, one fund did just that. The value of the administrative share class of the Morgan Stanley Prime Portfolio, an institutional prime money market fund, dropped from $1.00 to $.9999 just 24 hours after new rules governing the money fund industry were implemented by asset managers on October 17. On October 18, 19, and 20, the administrative share class of the Prime Portfolio was $.9999 per share, according to the Morgan Stanley website. (Prime funds hold corporate commercial paper and other short-term debt.) A Morgan Stanley spokeswoman says the share class has very little in assets, adding, It is not unusual for NAVs to differ slightly in multishare class funds, especially in share classes that have nonmaterial AUM, like the administrative share class.

Two other share classes of the Morgan Stanley Prime Portfolio are trading slightly above $1.00. One is at $1.0002 and the other at $1.0005. And Morgan Stanley has plenty of company. The NAV of the institutional share class of the Fidelity Prime Money Market Portfolio has moved to $1.0004, according to Fidelity Investments website. The NAV of Western Asset Management Co.s Liquid Reserves fund was $1.0003, according to the companys website. The fluctuations show that a variable NAV is, indeed, variable.

Under the Securities and Exchange Commissions new money market reform rules, in addition to allowing the NAVs of prime money market funds to float, fund boards have the power to prevent withdrawals and charge redemption fees on prime funds under certain scenarios. At the same time, the SEC has allowed asset managers to operate more-conservative government money market funds, which hold Treasuries, repurchase agreements, and other securities, with a stable $1.00 NAV.

Although the changes in NAV are small, the evidence flies in the face of fund companies insistence that it would be highly unlikely that a money market fund would again drop below $1.00 after 2008 or that values would change at all. The Reserve Fund, a large money market fund, broke the buck when its Lehman Brothers Holdings investments lost value after the now-notorious investment bank filed for bankruptcy in September 2008. Sophisticated institutional investors like pension funds quickly redeemed their shares at $1.00, forcing Reserve to sell assets and leaving smaller savers with losses once the Reserve Fund adjusted the NAV down to $0.97. The floating NAV and other new rules for prime funds are designed to protect smaller investors from the actions of large institutions in times of market stress.

Investors have used money market funds to park cash since the 1980s, assuming the funds were as safe as bank accounts and certificates of deposit insured by the Federal Deposit Insurance Corp. Fund companies set the net asset value of money market funds at $1.00, meaning investors bought shares for $1.00 and got $1.00 back at any time. But the $1.00 NAV wasnt a statutory requirement, even though fund companies generally assumed any small losses or gains because of price movements in the value of the underlying short-term investments.

The new rules are already reordering the industry, with the prospect of a floating NAV for prime funds scaring off some investors. Investors have pulled $170 billion from mostly prime institutional funds since September 28, according to the Investment Company Institute. That was on top of investors withdrawing $547 billion from prime funds between January 2015 and September 2016. Government funds gained an almost equivalent amount during the time period.

Eric Lansky, president of StoneCastle Cash Management, an institutional cash manager and investor in community banks who wasnt familiar with the Morgan Stanley funds NAV drop when interviewed says most corporate treasurers and other money fund users are unprepared for a money fund with an NAV above or below $1.00. Treasurers may not be sure of the tax treatment of gains and losses or how to account for price changes. Lansky adds that treasurers are also considering alternative cash accounts that have higher yields than the money funds and maintain a $1.00 NAV. StoneCastle has seen, for example, a significant increase in demand for its federally insured cash account (FICA), a proprietary cash management account that offers full federal deposit insurance and next-day liquidity.

Lansky adds that treasurers are also considering whether to switch back to higher-yielding prime funds, even if they have a variable NAV, and whether to invest in separately managed accounts for longer-term cash, which are not subject to the same rules.

where to invest 10,000 (bloomberg business week)

2016-10-19T15:50:00.002-04:00

Where to Invest $10,000 Right Now

Five experts weigh in.

Emerging markets are still favorites,

but Europe is also on the list.

By Suzanne Woolley

June 20, 2016 | Updated on October 17, 2016

Successful investors take risks. The trick is to take smart ones, in a diversified portfolio.

Here’s how.

First, make sure you’re covered on the financial basics. Then start scouting out powerful places to invest any excess cash that's making you next to nothing in a savings account. With the holidays and perhaps a raise or bonus on the horizon, it’s a good time to make that money work for you and your retirement.

To help, we asked five leading investors to share their best ideas on where to invest $10,000 right now. (It makes sense for smaller sums, too.) We first quizzed them back in June, when we also asked exchange-traded-fund analyst Eric Balchunas of Bloomberg Intelligence to choose ETFs that came closest to the strategies and themes they highlighted. Some of the experts also run mutual funds that employ their strategies.

Among their summer favorites were out-of-favor emerging markets, and many ETFs tracking those markets have seen double-digit gains. How did our panel of experts do last quarter, exactly? Very well, thank you. Check out the results that follow each new entry below. For comparison, the Standard & Poor’s 500-stock index was up 3.3 percent from June 30 to Sept. 30.

So is it too late to get into emerging markets now? Is China still promising or just too messy? We’ll let the panel answer, and share its new ideas, ranging from opportunities in floating-rate bank loans to consumer-related stocks in China.

You can toggle between last quarter’s and this quarter’s advice with a quick click, or just check out the panel’s advice for the here and now.

Either way, as we emphasized in June’s “Where to Invest $10,000 Right Now” and above, take a look at these financial musts first.

Then see if you can profit from our experts’ latest ideas.

Barry Ritholtz

Chairman and chief investment officer, Ritholtz Wealth Management

Stick With ‘Ugly Ducklings’

Three months ago, we looked at where to invest $10,000. My suggestion, assuming your portfolio was already well diversified in low-cost global indices, was to look at inexpensive, underperforming asset classes that were “ripe for a reversion towards their historic average returns.” I suggested two emerging market indices, with the caveat that “ugly duckling investments” like these often need years to blossom.

I was way too pessimistic, as these two funds have rallied about 12 percent since then.

Rather than cash out, I am going to suggest you stay with this investment for longer. Not just a little longer, but a whole lot longer.

Why? There are at least four compelling reasons:

First, and most obvious, emerging markets remain the cheapest broad equity markets in the world. The U.S. is fully valued; the developed world ex-U.S. is also pricey. Europe, despite all of its woes, isn’t much cheaper. EM, on the other hand, remains attractively priced. If you want to see how well this thesis is playing out, look at a chart of the ratio between the S&P 500 index (SPY) versus the MSCI Emerging Markets Index (EEM). When the line is rising, U.S. markets are outperforming emerging markets; when it is falling, EM is outperforming U.S.

Second, as we noted last time, the U.S. has been outperforming EM for about seven years. These cycles can run anywhere from five to 10 years, and given the valuation differential we could be in the very early innings of a long bull market for emerging economies.

Third, emerging markets are affected by the strength of the U.S. dollar and pricing of commodities. Today, the dollar is at multi-year highs while commodities are the cheapest they've been in many years. I have no idea how long this condition will persist, but eventually mean reversion will rear its head. The dollar will weaken, commodities will see price increases, and both of those benefit the EM economies and their stock markets.

The same two inexpensive investments—DFA Emerging Markets Core Equity (DFCEX, purchased through advisers) and the Vanguard Emerging Markets Stock Index Fund Admiral Shares (VEMAX)—remain my choices. [DFCEX rose 7.4 percent for the three months ended Sept. 30; VEMAX gained 6.5 percent.]

Fourth and last is a trading rule I developed a long time ago: So long as the underlying reasons for owning something are still in place, you hold on to that position. Never make excuses for not selling once your thesis is disproved. Conversely, until your underlying reasons for ownership are no longer valid, don’t sell merely because of a little price appreciation. Cutting your losers and letting your winners run is much better investing strategy.

Way to play it with ETFs: The Vanguard FTSE Emerging Markets ETF (VWO) holds 36,000 emerging-market stocks, with its heaviest weightings in China, Taiwan, and India. VWO is the ETF version of Vanguard Emerging Markets Stock Index Fund (VEMAX) and costs the same. Either will do.

Performance of last quarter’s ETF plays: The ETFs Balchunas chose to track Ritholtz’s advice were the iShares Core MSCI Emerging Markets ETF (IEMG) and theiShares Edge MSCI Minimum Volatility Emerging Markets ETF (EEMV) . They rose 9 percent and 5 percent, respectively, for the three months ended Sept. 30.

Sarah Ketterer

CEO and fund manager, Causeway Capital Management

Invest in Corporate ‘Self-Help’

In this seemingly endless environment of economic stagnation, what will drive revenue and profit growth? Central banks may be running out of monetary solutions to stimulate credit and demand. While we wait for the political landscape to become less muddled, investors can get access to companies engaged in operational restructuring or “self-help.”

These companies, boasting strong balance sheets and modest levels of debt, typically have managements committed to a continuous and inexorable process of cost cutting and increased efficiency. In mobile telephony, especially in Japan, China, and South Korea, several of the largest listed companies have found increasingly ingenious ways to extract above-industry-average returns from the mature telecommunications market. [China Mobile Ltd. and SK Telecom Co. Ltd. were in the top 15 holdings of the Causeway International Value Fund (CIVIX), as of June 30.] Smart self-help moves by senior managements of these companies have led to a reduction in capital expenditures and operating costs.

These companies are typically creating innovative and value-added services, introducing popular data plans and benefiting from supportive local regulations. Similarly, in the more mature segment of technology, “legacy tech” companies also have managements committed to reinvigorating growth. Even though these companies have valuable proprietary technology, sell-side analysts put some of them in the dinosaur category. But the analysts often take a short-term view. Market pessimism can give investors a chance to buy world-class technology franchises in transition.

For example, large enterprise software companies must make a successful transition from an on-premises licensing business model to a cloud-computing subscription-based model. Semiconductor companies currently expert in mobile wireless technology are making measurable progress to deliver next-generation technology. Look for efficient operations, focused and shareholder-friendly managements, as well as inherent advantages in research and development expertise and resulting defendable intellectual property. [SAP and Samsung Electronics are CIVIX holdings.]

Economic malaise aside, these great companies, albeit often labeled mature and in transition, still trade at valuations that imply the potential for above-market returns.

Way to play it with ETFs: The First Trust NASDAQ Technology Dividend Index Fund (TDIV) holds tech companies that pay the highest dividend, which means it has the largest percentage of “legacy tech” names such as Intel Corp., Microsoft Corp., Cisco Systems Inc., and Oracle Corp. This “I love the 90s” portfolio has the lowest volatility, lowest average price-to-earnings ratio, and highest dividend yield of the technology ETFs.

Performance of last quarter’s ETF plays: The ETF Balchunas chose to track Ketterer's advice back in June was The WisdomTree Japan Hedged Equity Fund (DXJ) . It rose 11 percent for the three months ended Sept. 30.

Mark Mobius

Executive chairman, Templeton Emerging Markets Group

Look to China’s Internet

We believe emerging markets should be included in a well-diversified portfolio, and one place to invest $10,000 of that portfolio is in China. Since the beginning of 2016, we've observed the Chinese stock market acting with high volatility. That's due in large part to changes in government policies as regards supporting or heating up [the market] but then cooling the market down. This, of course, has created a lot of speculation and confusion. However, what we are certain of is that the fundamentals in China still remain positive.

Despite a decelerated growth rate, China remains one of the fastest-growing economies in the world. We are not too concerned by the current slowing growth nor its long-term investment prospects. Looking past the Chinese stock markets, we are now on the ground and looking to capitalize on the long-term Chinese growth story and the ongoing transformation of its economy from a production/export-led economy to a services-led economy.

Emerging markets globally in many cases have been severely oversold and are cheap in relation to their long-term earnings capacity. This is true in China as well as other countries. We are probably nearing the end of the downtrend in prices, so our focus must be company-specific rather than making a commitment to the market in general. We are most bullish for consumer-related stocks and particularly technology stocks.

More specifically, Internet stocks are showing healthy growth characteristics with good margins. Selected commodity shares are still cheap and are among our favorites, but I emphasize “selected,” since not all the sector stocks are of interest. Oil prices have shown a bottoming out, and with the expectation that those oil prices will not have a dramatic upside, diversified oil companies should do well because of their downstream operations. [Downstream refers to refining and other activity that leads to selling to consumers at gas stations, rather than activities like production and exploration.]

Ways to play it with ETFs: The iShares MSCI China ETF (MCHI) is a highly liquid, fast-growing China ETF that tracks Hong Kong- and U.S.-listed Chinese companies. It has a 34 percent weighting in tech stocks such as Alibaba Group Holding Ltd. and Tencent Holdings Ltd. and a 10 percent allocation to consumer stocks. Investors could pair MCHI with the Deutsche X-trackers Harvest CSI 300 China A-Shares ETF (ASHR) . It holds locally traded A-shares, albeit with only 8 percent in the tech sector but with 16 percent in consumer stocks.

Performance of last quarter’s ETF plays: In the first iteration of "Where to Invest $10,000 Right Now," the two ETF analyst Balchunas chose to track Mobius's advice were the iShares MSCI China ETF (MCHI) and the iShares MSCI Brazil Capped ETF (EWZ) . The ETFs were up 14 percent and 11 percent, respectively, for the three months ended Sept. 30.

Rob Arnott

Co-founder, Research Affiliates

Add Out-of-Favor Europe

My recommendation in June was to concentrate on emerging-market value stocks. Over the three months ending in August, the Fundamental Index in emerging markets rallied by 17 percent, conventional emerging markets stocks were up 12 percent, and U.S. stocks were up about 4 percent. [Fundamental indexation is a way to weight the stocks that make up an index by fundamental factors of their business, such as sales, book value, and cash flow, rather than their market capitalization. This leads to a tilt toward value, rather than, say, the growth tilt of the market cap-weighted S&P 500 Index.]

Will the rally in EM stocks continue? We have no idea. Valuation levels suggest that the long-term prospects remain excellent. Even after the run-up, EM stocks are trading at about 13 times their long-term (10-year) earnings, compared to European stocks at 14 times and U.S. stocks at a nosebleed level of 27 times. The Fundamental Index in emerging markets is even cheaper, at around 8½ times earnings.

Looking through the lens of valuation, it now makes sense to consider adding European stocks to the mix. Note that both EM and Europe are severely out of favor. That’s normal for bargains. We win, on average over time, by buying whatever others shun.

The same value principle applies to other asset classes. Some out-of-mainstream bond markets have pushed into bargain territory after a three-year bear market. The best time to pivot into an asset class is when it is most shunned. With near-zero yields on mainstream bonds, we can seek higher yield in other bond markets. Floating-rate bank loans are attractive for their higher yield and their ability to weather any backup in bond yields. Emerging-market local currency bonds are also interesting based on strong fundamentals and the tailwind from cheap currencies. And EM local currencies offer ample opportunity, having tumbled from a 25 percent premium five years ago to a 19 percent discount today!

Today I would invest $10,000 by placing $2,500 in each of these four asset classes: EM deep value stocks, European stocks (preferably with a value bias), floating-rate bank loans, and EM local currency bonds. This is not a “permanent portfolio,” but it’s a nicely diversified (if unconventional) portfolio of reasonably cheap markets.

Ways to play it with ETFs: An ETF to consider is PowerShares Fundamental Emerging Markets (PXH) , which has fees of 0.49 percent. (It uses Arnott's fundamental indexing approach.) For Europe there's the Vanguard FTSE Europe ETF (VGK) , for floating-rate bank loans there's the PowerShares Senior Loan Portfolio (BKLN), and for EM local currency bonds investors can use the VanEck Vectors J.P Morgan EM Local Currency Bond ETF (EMLC).

Performance of last quarter's ETF plays: To track Arnott's advice in the last go-around, ETF analyst Balchunas chose the First Trust Emerging Markets AlphaDEX Fund (FEM) , which uses growth and value factors to select stocks. It gained 8 percent for the three months ended Sept. 30. An ETF mentioned above, PXH, which also would have been a good way to play Arnott's advice, rose 11 percent. A mutual fund, the Schwab Fundamental Emerging Markets Fund (FNDE), uses Arnott's approach as well.

Francis Kinniry

Principal, Vanguard Investment Strategy Group

Add to Your Losers

If the original investment plan you established still meets your long-term goals and objectives, new proceeds of $10,000 can be allocated to return your portfolio to its original asset allocation. As such, the new cash flow would be seen as a "non-taxable rebalancing" opportunity. In other words, you can better align your portfolio back to the investment plan without selling better-performing assets—and thus realizing a taxable gain—to buy more of what hasn’t done well in the portfolio.

Why would anyone want to do this? Because a portfolio’s asset allocation is the major determinant of its risk-and-return characteristics. Yet, over time, asset classes produce different returns, so the portfolio’s asset allocation changes. Therefore, to recapture the portfolio’s original risk-and-return characteristics, the portfolio should be rebalanced. Portfolio rebalancing is extremely important, because it helps investors to maintain their target asset allocation. By periodically rebalancing, investors can diminish the tendency for “portfolio drift” and thus potentially reduce their exposure to risk relative to their target asset allocation.

Ways to play it with ETFs: While there isn’t one ETF for Kinniry’s suggestion, it’s a good excuse to point out that investors can now get a fully diversified portfolio with ETFs for a blended fee of around 0.10 percent using funds offered by Vanguard Group, Charles Schwab Corp., and BlackRock Inc., which just lowered fees on its “core” series aimed at individual, buy-and-hold investors.

Performance of last quarter’s ETF plays: Kinniry’s June commentary focused on low-cost target-date funds, and there is no real way to replicate all the parts of a target-date fund with an ETF. Balchunas focused instead on an asset allocation ETF, theiShares Core Growth Allocation ETF (AOR) . It has 60 percent in equity ETFs and 40 percent in bond ETFs. It rose 3 percent for the three months ended Sept. 30.

Dividend of the Month Club (kiplinger) - get paid every month

2016-10-12T12:59:00.002-04:00

12 Dividend Stocks for Every Month of the Year

istockphoto

Whether you’re pulling in a paycheck or living off investments, dividends can be a great way to reel in some cash. But investors usually have to wait months between payments. Many companies dole out dividends in March, June, September and December. If all your payments land in that timetable, your income stream can dry up for long stretches.

To keep the cash flowing, we assembled a bundle of 12 stocks that pays dividends every month, generating income like a steady paycheck. We focused on firms with steady businesses, sturdy balance sheets and a commitment to uphold their payouts. Not all the stocks boast fat yields. But our lower-yielding picks feature strong profit potential, along with room to hike their dividends.

A portfolio of equal stakes in each stock would yield 3.3%. That beats the 2.1% yield of Standard & Poor’s 500-stock index and the 1.5% yield of 10-year Treasury bonds. Stocks can fall far more than bonds, of course. But if you stick with this lineup, the payments should roll in. Most of these firms should increase their dividends each year, too.

All data as of July 31. Price/earnings ration based on estimated earnings over the next 12 months. Sources: Nasdaq, Thomson Reuters, Yahoo

By DAREN FONDA, Associate Editor | August 2016

Great Stocks to Get Dividends Every Month

January: Cardinal Health

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Symbol: CAH

Price: $84

Yield: 2.2%

Annual dividend rate: $1.80

Price-earnings ratio: 15

Also pays in: April, July, October

Drug distributor Cardinal runs a high-volume, low-profit-margin business that faces heavy pressure from rivals. But Cardinal is taking measures to fire up its growth.

The firm recently acquired Johnson & Johnson’s Cordis unit, which makes stents and other cardiology devices. Cardinal expects Cordis to bolster the firm’s international sales and boost annual earnings by more than 20 cents per share, or $65 million. Moreover, Cardinal has teamed up with CVS Health (its biggest customer) to buy generic drugs, helping Cardinal negotiate better deals that could lift its profits. Wall Street estimates that profits will climb 8% in the fiscal year that ends in June 2017. As the business improves, the shares should hit $97 over the next year, says Credit Suisse, which rates the stock “outperform.”

QUIZ: How Well Do You Know Dividends?

Great Stocks to Get Dividends Every Month

February: AbbVie

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Symbol: ABBV

Price: $66

Yield: 3.4%

Annual dividend rate: $2.28

Price-earnings ratio: 13

Also pays in: May, August, November

AbbVie produces Humira, one of the world’s best-selling drugs. Physicians are prescribing Humira for a growing array of illnesses, including rheumatoid arthritis, Crohn’s disease and psoriasis. Raking in more than $14 billion in annual sales, Humira accounts for more than half of AbbVie revenues and an even higher proportion of the firm’s profits, which are rising steadily.

Unfortunately, Humira’s starring role won’t last. Its U.S. patent expires at the end of 2016. But because Humira is a complex biotech drug, generic versions will likely take several years to gain traction in the marketplace and may not wind up being much less expensive than Humira. Meanwhile, AbbVie is expanding its roster of drugs to treat blood cancers and other diseases. Wall Street sees earnings growth of 12% this year and 18% in 2017.

Great Stocks to Get Dividends Every Month

March: Boeing

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Symbol: BA

Price: $134

Yield: 3.3%

Annual dividend rate: $4.36

Price-earnings ratio: 14

Also pays in: June, September, December

Aerospace giant Boeing has hit some turbulence.

Investors fret that demand for its wide-body planes is peaking. Plus, a strong dollar is crimping profits, and low oil prices may delay orders for new aircraft as customers stick with older, less-efficient planes.

Yet Boeing’s stock, down 6.1% this year, may already reflect those concerns. The firm’s aircraft production backlog remains enormous, with, Boeing says, orders for 5,700 new planes worth $480 billion. Meanwhile, the firm’s defense, space and security business looks solid, with sales rising 19% in the first three months of 2016, to nearly $8 billion. All told, Boeing’s bears have “overstepped reality,” says Deutsche Bank, which expects the stock to reach $160 over the next year.

Great Stocks to Get Dividends Every Month

April: Coca-Cola

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Symbol: KO

Price: $44

Yield: 3.2%

Annual dividend rate: $1.40

Price-earnings ratio: 22

Also pays in: December, July, October

Yes, people are drinking less soda, but the soft drink giant can still thrive.

Price increases and expanding sales of bottled water (Dasani), energy drinks (Powerade), juices (Minute Maid, Simply Orange) and other products in its lineup are offsetting some of the decline in soda sales. Coca-Cola is also slimming down. The firm is exiting the capital-intensive bottling business almost entirely, transferring 84,000 employees from its workforce of 123,000 to independent bottlers. The shift will shave about $10 billion from Coca-Cola’s revenues by the end of 2017, according to Bank of America Merrill Lynch. But the move will save billions of dollars in overhead and bolster profit margins. Wall Street expects Coca-Cola to report earnings of $8.7 billion in 2017, up 5% from 2016. That ought to please one of the company’s biggest cheerleaders, Warren Buffett, whose Berkshire Hathaway owns about 9% of Coke’s outstanding shares.

Great Stocks to Get Dividends Every Month

May: Apple

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Symbol: AAPL

Price: $104

Yield: 2.2%

Annual dividend rate: $2.28

Price-earnings ratio: 12

Also pays in: February, August, November

Skepticism about Apple runs so high that the stock’s price-earnings ratio of 12 is 35% less than the P/E of the average big utility.

Bears argue that Apple’s innovation machine has stalled and that its flagship product, the iPhone, won’t lure as many customers as expected in China and other key markets, where lower-priced smartphones are making inroads. Yet Apple’s competitive strengths remain formidable. Its “ecosystem” of hardware, software and services keeps many customers locked in and coming back for new products. Sales are likely to pick up with the expected September launch of the iPhone 7. Apple is also developing additional revenue streams, such as a new subscription model for app developers and paid search ads on its App Store site. With $233 billion in cash and securities on its balance sheet and access to low-cost debt, Apple’s finances provide plenty of firepower for more dividend hikes.

Great Stocks to Get Dividends Every Month

June: Microsoft

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Symbol: MSFT

Price: $57

Yield: 2.5%

Annual dividend rate: $1.44

Price-earnings ratio: 12

Also pays in: March, September, December

Microsoft tried to make a splash this year by undertaking its biggest acquisition ever—a proposed $26.2 billion deal to buy networking site LinkedIn. Yet the stock hardly budged on the news, partly because Microsoft already makes more than $20 billion a year in profits, vastly more than LinkedIn could kick in. But the stock jumped by more than 5% on the day after Microsoft issued results for its April–June quarter that handily exceeded Wall Street forecasts, with big gains in the firm’s cloud-computing business and steady growth in its flagship Office software suite. Profits are likely to keep inching up as Microsoft launches new software products and signs up more customers for its cloud services. All this makes Microsoft a kind of “tech utility” that can deliver steady earnings growth and a rising dividend, which Wall Street expects to increase by 7% over the next year. With the shares up 24% over the past year, the stock may take a breather in the near term. But, helped by a steadily growing disbursement, it should perform well over the long haul.

Great Stocks to Get Dividends Every Month

July: General Electric

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Symbol: GE

Price: $31

Yield: 3.0%

Annual dividend rate: $0.92

Price-earnings ratio: 21

Also pays in: January, April, October

Few, if any, rivals can match GE’s global scale and expertise in assembling products such as aircraft engines, gas and wind turbines, locomotives, and health care imaging machines.

Plus, GE is no longer shackled by its huge financial-services business, which it has mostly sold off. Armed with a stronger balance sheet, GE can now spend more heavily on dividends and stock buybacks, along with acquisitions that could lift its bottom line.

At 21 times estimated profits, GE’s stock looks pricey and may not have much appreciation potential in the near term. But the dividend appears to be secure, and analysts estimate that GE will boost the payout to $1.00 per share in 2017 — a healthy 9% raise.

Great Stocks to Get Dividends Every Month

August: AT&T

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Symbol: T

Price: $43

Yield: 4.4%

Annual dividend rate: $1.92

Price-earnings ratio: 15

Also pays in: February, May, November

AT&T’s purchase of DirecTV last year is boosting results.

Analysts see the telecom giant’s revenues rising 12%, to $165 billion this year, with profits climbing 5%, to $17.6 billion. Growth of such magnitude isn’t likely to last, but AT&T should still be a solid earner, thanks to new TV services it plans to roll out. To help retain customers, the firm is also offering package deals with unlimited mobile data for subscribers who buy TV service, too. The knock on AT&T is that the stock, selling for about 15 times estimated year-ahead earnings, is pricey relative to its earnings growth. But compared with the paltry yield on Treasuries, the stock’s 4.4% yield looks appealing. AT&T’s dividend should keep rising, though modestly. Analysts see AT&T lifting the payout by 2% next year.

Great Stocks to Get Dividends Every Month

September: United Parcel Service

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Symbol: UPS

Price: $108

Yield: 2.9%

Annual dividend rate: $3.12

Price-earnings ratio: 18

Also pays in: March, June, December

One day in the future, drones dispatched by Amazon.com may drop packages on our doorsteps. But that won’t happen soon, making UPS a good bet to benefit from people buying more goods online. Delivering more than 4.5 billion packages and documents a year, the firm is constantly finding ways to speed things up, using technology to plan the best routes and squeeze every penny out of each drop-off. Its latest venture: rolling out digital-locker pickup spots at retailers such as 7-Eleven.

Over the long term, UPS will have to fend off FedEx and other rivals, including Amazon, which is adding thousands of trucks to its own delivery fleet. Yet it won’t be easy to match UPS’s vast global transport network and high-tech logistics services. UPS is more profitable than FedEx and DHL. Even after pumping cash back into the business, UPS should have ample funds to hike its dividend, which has climbed an annualized 10% since its first payout, in 2000.

Great Stocks to Get Dividends Every Month

October: Occidental Petroleum

Symbol: OXY

Price: $75

Yield: 4.1%

Annual dividend rate: $3.04

Price-earnings ratio: 88

Also pays in: March, June, December

One of the largest domestic oil producers, Oxy reported big losses as oil prices collapsed. Yet its stock has stayed relatively strong. So has its dividend, which Oxy recently lifted from an annual rate of $3 per share to $3.04 per share.

Conservatively managed, Oxy keeps its debt low, socks away cash that it can later dole out as dividends, and refrains from spending heavily on risky oil or natural gas prospects. With its production costs now falling, the firm can break even and cover its dividend with the per-barrel price of oil in the mid $40s, estimates Merrill Lynch. Oxy is also expanding with a new natural gas plant in the United Arab Emirates and a petrochemicals plant in Texas. Oxy’s P/E looks high because earnings are depressed. But analysts see profits rebounding to $1.38 per share in 2017 and continuing to climb from there.

Great Stocks to Get Dividends Every Month

November: Verizon Communications

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Symbol: VZ

Price: $55

Yield: 4.1%

Annual dividend rate: $2.26

Price-earnings ratio: 14

Also pays in: February, May, August

Bundling packages of phone, internet and TV services is helping Verizon, the second-largest telecom provider, defend its turf against cable companies and its bigger rival, AT&T.

Verizon now controls all of its wireless business (after buying Vodafone’s 45% stake in 2014). Verizon has also gone on a spending spree to expand beyond telecom services. The company snapped up AOL and recently announced a deal to buy Yahoo for $4.8 billion. In addition, Verizon plans to buy Fleetmatics, which makes vehicle-tracking software, for $2.4 billion.

Trading at 14 times estimated earnings, the stock isn’t cheap in light of a profit-growth forecast of just 3% in 2017. But in a low-yield world, investors are paying up for the kind of stability Verizon offers, with dividends that should climb steadily for years.

Great Stocks to Get Dividends Every Month

December: Valero Energy

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Symbol: VLO

Price: $52

Yield: 4.6%

Annual dividend rate: $2.40

Price-earnings ratio: 12

Also pays in: March, June, September

The world’s largest independent refiner, Valero produces gasoline, ethanol and other products.

With more than half of its production capacity located along the Gulf Coast, Valero has access to a variety of imported and domestic raw materials, such as heavy crude oil and natural gas, at low prices. It’s also in a good position to ship refined goods to Latin America, where demand is growing at a healthy clip. Those advantages have helped make Valero one of the lower-cost and more-profitable refiners. It is also conservatively managed, carrying just a modest amount of debt. With the industry now mired in a downturn, Valero’s profits have tumbled. But even with earnings expected to slide 65% this year, to $3.24 per share, Valero should rake in more than enough cash to cover its dividend. Analysts see earnings per share rebounding 60% in 2017. If that doesn’t pan out and the stock stays flat, investors should still be able to scoop up a 4.6% yield.

preferred stocks (bARRONS)

2016-09-11T13:19:00.003-04:00

September 10, 2016

With income investors hard-pressed, given the artificially low interest-rate environment, we went back to the well: that is, to preferred stocks, last mentioned here on May 14.

The stock market’s dividend yield is just 2.2%, while the 10-year Treasury yields a mere 1.67%. Both have risks, particularly Treasuries, given that the Fed is committed to raising rates, perhaps by December—and possibly sooner, as we note above. A hike would push down bond prices. What it will do to stocks is an unknown danger, too.

Corporate preferreds are an attractive way of securing a higher yield at a lower risk, though their capital gains are likely to be more restrained, too. We returned to Douglas Christopher, an analyst at D.A. Davidson, who gave us five preferred stock picks in May, most with fixed coupons. Although all of them were already above par value then, they’ve risen in price since May.

That high valuation is a problem for investors new to the preferred scene. Fixed-coupon preferred stock prices could drop and be volatile before and after the Fed hikes rates, the analyst notes.

So, this time, he likes adjustable preferreds, most of which are selling significantly below par value (see table, above). Consequently, they could fare better than fixed preferreds if a rate hike materializes, especially if the central bank moves more quickly than markets expect.

In general, the average yield on fixed preferreds is about 5.5%, versus 4.2% for adjustables. The interest rate on adjustables can change, and that’s a risk—but rates should be rising. We’ll note that under the typical underlying terms governing adjustables, it would take a slew of hikes to raise the current coupon rates.

Nevertheless, the dollar payout levels for these five, such as a $1 per year for theGoldman Sachs Group D preferred shares (GS.D), are effectively at their minimums already. So there’s some downside protection. As in the previous batch, these preferreds come mostly from banks whose credit fundamentals and dividends are healthy.

If rates stay flat, you miss out on the better yield of the fixed-coupon preferred. Still, “if you are looking for income and a decent yield, but at a price below par, this is an attractive way to go,” Christopher observes.

when are taxes reduced on withdrawals from inherited retirement plans? (Natalie Choate)

2016-09-09T14:09:00.002-04:00

12 No-Tax and Low-Tax Retirement Plan Distributions

If a recipient qualifies for one of these deals, the distribution may be taxed more favorably than as a 100% taxable chunk of ordinary income.

Natalie Choate, 08/12/2016

Question: A client has inherited a retirement plan account from the deceased participant. The client plans to cash out the account as soon as possible (he needs the money). He has asked me whether the distribution is taxable. My first reaction was yes, the distribution would simply be treated as ordinary income in the year received. But now I'm not sure--is that response correct?

Answer: The answer is probably yes--the distribution is probably fully includible as ordinary income in the recipient's gross income, but here's how to be sure: Run through the following checklist of no-tax and low-tax retirement plan distributions. If your recipient qualifies for one of these deals, the distribution may be taxed more favorably than as a 100% taxable chunk of ordinary income.

This checklist was prepared to cover ANY retirement plan distribution, so some of the items clearly don't apply to your guy. I have added in comments for your particular situation:

1. Roth plans. Qualified distributions from a Roth retirement plan are tax-free. Even nonqualified distributions are tax-free to the extent the distribution represents the return of prior contributions. Is this a Roth account?

2. Tax-free rollovers and transfers. Generally, distributions can be "rolled over" tax-free to another retirement plan, if various requirements are met. But the rollover option is not available to a beneficiary, unless he is the surviving spouse of the deceased IRA owner.

3. Life insurance proceeds, contracts. Distributions of life insurance proceeds from a qualified retirement plan after the participant's death are tax-free to the extent the death benefit exceeds the pre-death cash surrender value of the policy. Distribution of a life insurance policy on an employee's life to that employee during his lifetime may be partly tax-free as a return of his "investment in the contract."

4. Recovery of basis. If the participant has made or is deemed to have made nondeductible contributions to his plan account or IRA, these become his "investment in the contract" in the retirement benefits. This "investment" is nontaxable when distributed to the participant or beneficiary. The problem is figuring out how much, if any, aftertax money the decedent had in the account. For an IRA, start by checking the decedent's last-filed Form 8606 (attached to his/her income tax return). For other plans, ask the plan administrator.

5. Special averaging for lump-sum distributions. Certain qualified retirement plan lump-sum distributions of the benefits of individuals born before Jan. 2, 1936, are eligible for reduced tax. This one never applies to IRAs.

6. Net unrealized appreciation of employer securities (NUA). Certain distributions of employer stock from a qualified retirement plan are eligible for deferred taxation at long-term capital gain rates rather than immediate taxation at ordinary income rates. This one also never applies to IRAs.

7. No tax when annuity contract is passed out. When the plan distributes an annuity contract, there is no tax payable at that time--provided the annuity contract the plan administrator has distributed to the participant (or beneficiary) complies with the minimum distribution rules and is nonassignable by the recipient. Instead, the participant (or beneficiary) pays income tax on the monthly distributions he or she later receives from the insurance company under the contract.

8. Return of IRA contribution. In some circumstances IRA contributions can be returned to the contributor tax-free before the extended due date of the income tax return.

9. Income tax deduction for certain beneficiaries. A beneficiary taking a distribution from an inherited retirement plan is entitled to an income tax deduction for federal estate taxes paid on the benefits, if any.

10. Distribution to charitable entity. If the beneficiary is income tax-exempt, it will not have to pay income tax on the distribution. This one clearly does not apply to an individual!

11. Qualified Health Savings Account Funding Distributions (QHSAFD). An IRA owner is permitted, once per lifetime, to transfer funds tax-free directly from an IRA to a Health Savings Account (HSA). But this option is not available for a beneficiary.

12. QDROs and divorce-related IRA divisions. An individual can transfer all or part of his qualified retirement plan benefits or IRA to his spouse without being liable for income taxes on the transfer if the transfer is pursuant to a "qualified domestic relations order" (QDRO) (in the case of a qualified plan) or similar divorce court order (in the case of an IRA).

In summary: Any retirement plan distribution, whether it's a lump-sum distribution of the entire account or a partial distribution, is taxable. That is to say, it is fully includible as ordinary income in the gross income of the participant or beneficiary who received it--unless one of the above 12 exceptions applies!

Where to read more: "¶" symbols refer to sections of Natalie Choate's book Life and Death Planning for Retirement Benefits (7th ed. 2011; http://www.ataxplan.com/). Regarding the income tax treatment of distributions from Roth IRAs and designated Roth accounts, see ¶ 5.2.03 and ¶ 5.7.04. See ¶ 2.6 for rollovers by the participant, ¶ 3.2 for rollovers by the surviving spouse, and ¶ 4.2.04 for rollovers by other beneficiaries. See ¶ 2.6.08 for why certain IRA-to-IRA transfers are not taxable because they are not considered to be distributions at all. Regarding the income tax treatment of distributions of and under qualified plan-owned life insurance policies, see Natalie Choate's Special Report: When Insurance Products Meet Retirement Plans (http://www.ataxplan.com/). See ¶ 2.2 regarding how aftertax contributions are recovered tax-free from a retirement plan. See ¶ 2.4.06 regarding special treatment of lump-sum distributions for individuals born before 1936. See ¶ 2.5 regarding special treatment of "NUA" in distributions of plan-owned employer stock. Regarding tax-free distribution of annuity contracts, see theSpecial Report: When Insurance Products Meet Retirement Plans. See ¶ 2.1.08(D), (F), regarding tax treatment of returned IRA contributions. See ¶ 4.6.04-¶ 4.6.08 regarding a beneficiary's income tax deduction for estate taxes paid on retirement benefits. See ¶ 7.5.01-¶ 7.5.04 and ¶ 7.5.08 regarding paying retirement plan death benefits to an income-tax-exempt (charitable) entity. Regarding the one-time ability to use an IRA distribution to directly fund a health savings account, see Internal Revenue Code § 223 and § 408(d)(9), and IRS Notice 2008-51, 2008-25 IRB 1163. For information regarding QDROs and divorce-related divisions of IRAs, see § 402(e)(1), § 414(p), and § 408(d)(6) of the Internal Revenue Code and Chapter 36 of The Pension Answer Book by Stephen Krass.

Warning on High Dividend Yields (motley fool)

2016-09-09T14:00:00.001-04:00

10 Highest Dividend Yielding Stocks

Not all high yields are worth chasing. Only three of these stocks pass the sniff test.

Brian Stoffel

(TMFCheesehead)

Sep 9, 2016 at 7:28AM

IMAGE SOURCE: GETTY IMAGES.

It's no secret that dividend-yielding stocks are the cornerstones of a solid retirement portfolio. Usually, such stocks represent ownership in stalwart businesses that pay shareholders on a quarterly basis. Those payments not only offer downside protection, but they can also compound returns over time.

Still, one of the dangers of dividend investing is chasing after high yields. Case in point: The 10 stocks listed below have the highest yields of all the companies in the S&P 500, but not all of them are worth your investing dollars. In many cases, there's a good reason such stocks have high yields -- because there's a lot of risk involved.

Company	Dividend Yield
Frontier Communications (NASDAQ:FTR)	9.2%
CenturyLink (NYSE:CTL)	7.7%
Seagate Technology (NASDAQ:STX)	7.4%
HCP, Inc.	5.9%
Staples	5.6%
ONEOK	5.1%
Iron Mountain	5%
Ford (NYSE:F)	4.8%
General Motors	4.7%
AT&T	4.7%

DATA SOURCES: FINVIZ.COM, YAHOO! FINANCE.

If you're a dividend investor, there's nothing more important than free cash flow (FCF). This represents the amount of money a company was able to put in its pocket at the end of the year, minus capital expenditures. It is from FCF that dividends are paid, and investors should generally aim for companies that use less than 85% of their FCF to pay dividends.

Here's how the companies above stack up in FCF payouts.

There are sometimes reasonable explanations for a company having a high payout ratio. Frontier, for instance, has made some huge acquisitions that have yet to pay off fully, and its cash flow is far greater than its GAAP earnings. But we're in search of the best high-yielding stocks of the bunch, so we'll eliminate Frontier, Staples, ONEOK, and Iron Mountain right off the bat.

Business momentum

Beyond just paying a dividend, it's important to take note of whether or not the long-term thesis for investing in these companies is intact. Sometimes, a low payout ratio can hide a declining business that has strong FCF for the time being -- but is in long-term decline.

Ideally, we should see companies that are increasing revenue by at least 2% per year to outpace inflation, over a two-to-three-year time frame. Of the remaining companies, here's how they have performed in terms of revenue growth.

CenturyLink, a regional telecom, and Seagate, a provider of data storage devices, are both in long-term declines. The former is losing out to much larger national players while the latter is seeing its business be commoditized. General Motors, on the other hand, just hasn't shown the same type of growth that rival Ford has.

And then there were three...

That leaves us with three high-yielding dividends from the S&P 500 that are worth investigating.

For Ford, the main thing holding the stock back -- and the yield up so high -- is the fact that investors are worried we're on the brink of a downturn in car-buying behavior. This is a very cyclical industry, as everyone tends to upgrade to new cars at the same time -- when the economic winds are encouraging. That's been the case for a while now. If you're willing to wait out a downturn -- or you believe there's still room for revenue to grow globally -- then this may be a stock for you.

AT&T, on the other hand, benefits from huge market share in terms of mobile market share in America, as well as a smaller share in providing Internet services. The recent purchase of DirecTV also gives the company a hand in the content-delivery game. The barriers to entry are relatively high in the telecom industry, offering protection for investors. While the dividend is unlikely to grow by leaps and bounds, investors interested in a big payout would do well to investigate AT&T.

Finally, we have HCP, a real-estate investment trust (REIT) that focuses on healthcare properties. Obviously, with rising healthcare costs and a generation of Baby Boomers set to retire, there's a lot of potential growth for HCP. The company will be spinning off its post-acute care and skilled-nursing facilities portfolio in the near future, but the remaining company will still have lots of opportunity for growth.

Remember, not every high yield is worth chasing, but in the case of these three dividends, it might be worth buying shares for your retirement portfolio.

How to Buy Stocks: Limit Orders, Stop Loss Orders, and More (FINRA)

2016-08-26T15:29:00.001-04:00

Understanding Order Types Can Save Time and Money

When you place an order to buy or sell securities, you may get more—or less—than you bargained for. In some cases, the price quoted to you at the time of the sale may not exactly match the price you pay for your securities. This can happen because quotes may be delayed, trades take time to execute and, in highly volatile markets, millions of shares can trade in microseconds causing price swings.

You do, however, have the power to exercise some control over these factors by choosing the type of order you place. FINRA is issuing this alert to inform you about order types commonly available when you buy or sell securities. Understanding the benefits and risks of various types of orders can help you avoid unintended losses and better ensure your trades are executed in a timely manner and at a price with which you are comfortable.

Common Order Types

Orders fall into three primary categories:

Market Order – An order for immediate execution to buy or sell at the best price obtainable in the market during normal trading hours, 9:30 am to 4:00 pm. With this type of order, you get the most certainty that your order will be executed, but you do not get a guarantee on the execution price. A market order generally will execute at or near the current bid or ask prices in the marketplace.

What to Know: This is the most common type of investor order. Unless you specify otherwise, brokers typically will enter your order as a market order. Market orders are generally executed immediately because they do not have any restrictions tied to them. On the downside, you may not get the price you were originally quoted, especially in fast-moving markets. Also, if you place your order before or after normal trading hours, consider the possibility that news events or other factors may significantly impact the price of the security when the market opens again.
Limit Order – An order to buy or sell a security at or better than a specified price (a "limit price"). A buy limit order can be executed only at or below the limit price; a sell limit order can be executed only at or above the limit price. This means you are guaranteed to get your limit price or a better price if your order is executed. However, there is a chance your order may not be executed at all. For example, if the market price fails to match or better your limit price while your order remains active, it will not be executed. Some limit orders include a time limit within which the trade must be placed at (or better than) the specified price. These orders generally may have higher execution costs than market orders.

What to Know: This type of order is for investors who know the price they want for a particular securities transaction and want to manage market risk. Limit orders provide a guarantee that buy orders are not executed above a maximum price and sell orders are not executed below a set minimum. Limit orders are often used when obtaining the right price is more important than quick execution. The major risk with limit orders is that there is no guarantee that the order will be executed. The security may simply not reach your limit price within the specified time limit, in which case the order will expire. Or, in a fast-moving market, prices might move right past your limit price before the order can take place. For example, if a stock is trading at $120, and you place a sell limit order at $100, a flurry of market activity in the stock could cause it to rapidly move below $100 without the order being executed. Thus, your order may never be filled.
Stop Order – An order to buy or sell a security once the price of the security reaches a specified price, known as the "stop price." When this stop price is reached, the order automatically turns into a market order and is executed as soon as possible at the current market price.

What to Know: Similar to limit orders, brokers often recommend—and investors use—stop orders as a tool for managing market risk. You can generally use sell-stop orders to limit a loss or protect a profit position in the event the stock’s price changes. If you have a short position, you can generally use stop-buy orders to limit losses in the event the stock’s price increases. Some investors like stop orders because they do not have to continually monitor price movements to sell (or buy) at a specific price target.

Because stop orders, once triggered, become market orders, you immediately face the same risks inherent with a market order, among other potential risks. In particular, during volatile market conditions, these orders may be executed at prices significantly above or below the "stop price" you set. Like other market orders, your order is guaranteed to be executed fully and promptly at the current market price, but you may not like the price you get in a fast-moving market. For example, if the current price of a stock is $80 and you want to protect against a significant decline, you could enter a sell-stop order at $75. If an execution in the market occurs at $75 or lower, your stop order is triggered and a market order is entered to sell at the next available market price. In a market where prices are falling quickly, you run the risk that the next available market price could be significantly lower than $75.

Stop orders may be triggered on a short-lived, dramatic price change. During periods of volatile market conditions, the price of a stock can move significantly in a short period of time and trigger execution of a stop order, but the stock may later resume trading at its prior price level. If your stop order is triggered under these circumstances, you may end up selling at an undesirable price even though the price of the stock may stabilize during the same trading day.

And stop order risks don’t stop with you. Sell-stop orders may exacerbate price declines during times of extreme market volatility. The activation of large numbers of sell-stop orders may add downward price pressure on a security, which, during a precipitous price decline, might cause your sell-stop order to be executed well below the stop price.

To help manage the risks with stop orders, consider placing a "limit price" on a stop order (see chart below). A stop order with a limit price (a "stop-limit" order) becomes a limit order when the stock reaches the stop price, instead of a market order. By using a stop-limit order instead of a regular stop order, you regain a guarantee on the price you will receive; however, you lose certainty that the order will be executed because it will be treated as a limit order. Brokers cannot sell for a price that is lower (or buy for a price that is higher) than the limit price selected.

Orders with Time Restrictions and Other Conditions

Market, limit and stop orders can include time restrictions and other conditions. The order types available to you will depend on the market where your security is traded and what is allowed by your financial firm. For example, your firm may not allow stop or limit orders on some securities, or could charge higher commissions and other fees for processing them. Before building a buy or sell strategy on certain types of orders, ask your broker what types of orders you can place and what they cost. The tables below outline some of the other order types commonly available to investors.

Order Type	Description
Stop-Limit	A combination of a stop and limit order: an order to buy or sell at or better than a specified limit price only after the stop price has been reached. You run the risk that your order may not be executed because it will be treated as a limit order once stop price is reached.
Trailing Stop-Limit	An order in which the stop price trails the current price by either a number of points or a percentage the investor specifies. For example, you could put a trailing stop-limit order to sell your shares if they drop 10 percent from their current price. The benefit is that you would not need to keep resetting the order if the value of the shares rises or falls over time.
Fill-or-Kill	An order that must be immediately executed in full or it will be automatically cancelled.
Immediate or Cancel	A market or limit order that trades immediately and automatically cancels any unfilled portion.
All or None (AON)	A buy or sell limit order in which the broker is directed to fill the entire amount of the order or none of it. Immediate execution is not required, which makes this different than a fill-or-kill order.

Time Restrictions
Day	A market or limit order that expires at the end of the trading day it was placed if it is not executed.
Good Till Canceled (GTC)	A limit order that remains in effect until it is executed by the broker or canceled by the customer.
On Open	A market or limit order that must be executed when the market opens or re-opens. Any balance not executed as part of the opening trade is canceled.
On Close	A market or limit order that is either entered in its entirety at the closing price or canceled.

Things to Consider

Keep in mind that all orders are not handled the same way by your financial firm. Ask about your firm’s procedures for handling the execution of securities transactions and different order types, particularly during volatile market conditions. Market orders typically receive the highest priority, followed by limit orders.

When you use order types with automatic triggers, consider that these transactions may have unintended tax consequences. For example, you could end up paying a higher tax rate on your capital gains. The federal taxes you pay on long-term capital gains—those realized from assets held for more than one year—are generally lower than your individual tax rate. However, if a stop order triggers a sale on an investment you’ve held for less than a year, the capital gains would be taxed at your nominal federal income tax rate—which could be as high as 39 percent—plus a Net Investment Income Tax of 3.8 percent if your income exceeds thresholds set by the IRS.

No matter what type of order you choose, you cannot completely eliminate market and investment risks. You cannot predict when periods of market volatility will hit, so it is often best to decide what is most important to you based on your investment goals and objectives, whether it be price or making a trade at a specified time. In general, understanding order types can help you prioritize your needs, manage risk, speed execution and provide price improvement. For all of your securities transactions, check the trade confirmation you receive from your firm to make sure the price, fees and order information is accurate.

Resources

FINRA Investor Alert: It Pays to Understand Your Brokerage Account Statements and Trade Confirmations
FINRA: Evaluating Investment Performance
Securities and Exchange Commission: Trade Execution: What Every Investor Should Know

Last Updated:

August 9, 2016

Avoid Medicare Mistakes (thinkadvisor)

2016-07-20T08:17:00.004-04:00

jULY 18, 2016

11 Medicare Mistakes to Avoid

The rules of Medicare are complicated and laden with deadlines that are costly to miss

Understanding the alphabet soup of Medicare is hard enough without getting lost in the details. But understanding the options – and what mistakes not to make – can help your clients age gracefully and is an essential part of any retiree's financial plan

First, let’s generally define the Parts of Medicare. Part A, referred to as original Medicare, focuses on hospital coverage. Part B is medical coverage. Part C (also called Medicare Advantage) is a different way of putting Parts A and B into one plan, offered by private companies. Part D is prescription drug coverage.

The rules of Medicare are complicated and laden with deadlines that are costly to miss. Via Kiplinger, here are 11 common Medicare mistakes to avoid:

1. Not reviewing your Part D Plan annually

Medicare Part D is a headache for many to keep on top of. But remember these key points:

Open enrollment runs from Oct. 15 to Dec. 7 every year.
During open enrollment it’s essential to review options because there might be changes to your current plan, meaning your cost and coverage would vary. Be leery of plans that increase premiums, increase your percentage of cost for drugs, or other requirements, like having to use a specific pharmacy, to be covered.
Make sure you check if any drugs you’re on have gone generic, as you might get a nice price reduction.
Medicare also helps you to compare plans. Check out the various links on Medicare.govor AARP.org for more information, guidance and price comparison tools.

2. Picking the same Part D plan as your spouse

Not all Part D plans are alike, and just because a plan works for you it might not be the same for your spouse, who may be taking different prescriptions. Use the Medicare Plan Finder to determine your out-of-pocket costs on each plan. Also keep in mind that some plans require the use of specific pharmacies.

3. Going out of network on private Medicare Advantage plans

If using private Medicare Advantage plans, similar to PPOs or HMOs, you’ll need to utilize the network of doctors and hospitals within the plan to get the lowest co-payments. Be wary that if you go out of network, there may be no coverage at all.

4. Not knowing how to switch Medicare Advantage plans anytime if needed

Even outside the annual open enrollment period, it's possible to switch plans for life-changing events, like moving to a place that isn’t in your current plan’s geographical coverage. And if you’re in the five-star plan, you can make a switch any time during the year. Also, from Jan. 1 to Feb. 15, you may be able to switch from Medicare Advantage to traditional Medicare plus Part D prescription-drug plan.

5. Not considering Medigap within 6 months

Once enrolling in Medicare Part B, you have six months to buy any Medicare supplement plan in your area even if you have pre-existing conditions (and at age 65, who doesn’t?). But after six months, insurers can reject you or charge more depending on your health. It depends on your state rules and insurer’s policies. Check at Medicare.gov for your options.

6. Not opting for Medicare when you turn 65 (most of the time)

Forever young, so who needs Medicare? Well, you’re smart to take advantage of what the government is giving you, often for free. If you are getting Social Security already when you turn 65, you’ll automatically be enrolled in Medicare Part A and Part B. But if you aren’treceiving Social Security benefits, you’ll have to act on your own to sign up. There are reasons to delay: for example, you or your spouse have a full-time job and already get health care coverage as a part of that. Be aware that if you aren’t collecting Social Security benefits, there’s a seven-month period to sign up for Medicare, which runs from three months before the month you turn 65 to three months after.

7. Not signing up for Part B if you have retiree or COBRA coverage

Again, there are many tricky steps in the Medicare signup game. Unless you or your spouse are receiving insurance through a current employer (who has 20 or more employees),Medicare is considered your main health insurance coverage. Retiree coverage, COBRA or severance benefits are NOT primary, and if you don’t sign up for Medicare, you might have gaps in coverage and be late on your Part B premium. So pay attention.

8. Missing the Part B enrollment deadline after leaving your job

It’s an alphabet jungle out there, but this one is easy: if you still have insurance through a job when you turn 65, that’s fine. You don’t need to worry about Part B premiums. But within eight months of leaving your job, you need to sign up or you might have to wait for the next enrollment period, meaning a gap in coverage. Then there is also the possibility of a 10% lifetime late-enrollment penalty.

9. Ignoring income thresholds

Most people pay the minimum of $140.90 a month for Part B premiums and $12.30 per month for Part D. This goes higher depending on your adjusted gross income. So if you are bringing in more than $85,000, that Part B premium could more than double per month, where as Part D could jump fivefold. Be mindful when you are withdrawing from tax-deferred accounts that you don’t go over the income threshold if possible.

10. Not fighting surcharge changes for the year you retire

The Social Security Administration uses your tax returns from the most recent two years to determine if you are subject to an income surcharge, that is you are making more than $85,000 a year. But you can protest it if you prove life-changing events, such as divorce, death of a spouse or retirement.

11. Not minding your HSA contributions

You can’t contribute to HSAs if you are getting Medicare, but if you or your spouse have health insurance through a job (with 20 or more employees) and haven’t applied for Medicare or Social Security benefits, you still can continue to add to your HSA. That said, be careful about contributions in the year you leave your job and sign up for Medicare, as your HSA must be prorated by number of months on Medicare.

John Bogle INVESTMENT ADVICE (Vanguard)

2016-06-17T09:38:00.002-04:00

JUNE 16, 2016

Bogle Offers Investor Do’s and Don’ts

Vanguard titan John Bogle talks about the investing wisdom he’s gathered during his 65 years in financial services

John Bogle, the founder of Vanguard and champion of index funds, marked 65 years in the financial services industry with a special video webcast on Wednesday, talking about his career and evolution of the mutual fund industry and offering investment advice for the long-term.

The format was a Q&A with Rebecca Katz, head of Vanguard’s corporate marketing and communications, who mainly fielded questions that viewers had sent via the webcast or Twitter.

Changes in Market Landscape: Wall Street Rules

Bogle, 87, recalled that when he started in the business in 1951, the mutual industry had assets of $2 billion, turnover of assets was typically 25% a year, redemptions were about 8% on average, meaning the average holding period for investments was 12.5 years, and the weighted average expense ratio was about 60 basis points.

“When you multiply the higher fee rate to $16 trillion, it’s a bonanza for the fund industry,” said Bogle. He bemoaned an industry that is now “owned by financial conglomerates [which] used to be run by money managers.”Now, said Bogle, Vanguard alone has $3 trillion in assets, the average asset turnover for the industry is 250%, average redemptions are 25%, meaning the average holding period is four years, and the average expense ratio is 88 basis points, up nearly 50%.

Forty of the 50 fund companies are owned by financial conglomerates and they serve two masters: the conglomerates’ shareholders and the fund investors, said Bogle. “No man can serve two masters,” said Bogle. “The one that gets the love is the person who owns the management company. The others get what’s left.”

What Investors Should Do

Get ready for low returns. During his 65 years in the business – Bogle started in 1951 at the Wellington Fund, the predecessor of Vanguard, in 1951 and founded Vanguard in 1974 – stocks gained an average 12% annually, said Bogle.

“That is just not going to happen” now or in the near future, said Bogle. He expects stocks will return “closer to 4%” because of current high valuations – about 22 times earnings when the norm is 16 -- and 10-year bond yields, typically above 5.5%, will stay near 2% (they’re currently 1.6%). “We’ll be lucky to get a 4% to 5% return from balanced portfolios for the next 10 years,” said Bogle.

He explained that the reason for these expected low returns is the same reason the market can deliver high returns: the earnings power of corporations. “If dividend yields are lower, reinvestment returns will be lower.”

Still, Bogle said this ho-hum forecast is no reason for investors to get nervous. “Relax,” said Bogle. “The one thing that guarantees an asset value of zero is not investing at all.”

But low returns mean fees matter more, stressed the creator of the first U.S. stock index fund. “Once you get yields at this range – stocks at 2% and bonds 2.5% – what really matters is cost,” said Bogle. “If a stock fund is yielding 2% and has a 1.5% expense ratio you’ll just get half of 1%.”

He implored investors to know how much yield they’re getting and how much expenses they’re paying. “If a fund is taking three-quarters of a percent in yield and putting it in its own pocket, don’t go there.”

Costs trump performance, according to Bogle because “performance can go up and down or anything but costs are forever.”

Bogle advised investors to increase contributions to their savings plans along with rising income, and stay invested. “It’s remarkable what long-term compounding can do without tyranny of compounding costs. It’s magical mathematics.”

Stay invested to maximize the magic of compounding, said Bogle and “don’t peek” at your accounts. Don’t look at them daily or monthly.”

What Investors Should Not Do

In addition to avoiding high cost funds, Bogle warned against reaching for yield in the current low yield environment especially in retirement investments because investors depend on that money. It’s dangerous, according to Bogle. If you reach out too far on the limb on a tree, it snaps off.”

“You have to accept the market returns for what they are going to be. Don’t reach beyond. Don’t lever up.” Bogle denounced triple leverage funds. “All these tricks and shortcuts. Don’t do it,” said Bogle. “Stay the course, the main course.”

He also warned against commodities including precious metals. When asked if precious metals were a good investment, he responded, “No, no, no, with one exception. If you have a significant amount of wealth and are concerned about inflation it’s not the end of the world to put 5% of your money in precious metals funds, but not commodities.”

He suggested that investors take it a step further: creating two buckets for their money: a serious money account and a funny money account so that the latter doesn’t “ruin everything else.” Gold and other precious metals would have a home in the funny money account.

Bogle also warned about excessive trading. “Resist the temptation to move money around. Don’t trade back and forth. You’ll make a mistake.”

He also said investors shouldn’t get hung up on the idea that value is better than growth or vice versa because there have been periods as long as 15 years when growth does better than value. What does occur is a “reversion to the mean,” said Bogle, noting that value does better during some periods, then growth does better, then value again, and repeat.

Taking Stock of a Long Career

Despite his criticism of the mutual fund industry Bogle said he’s had an "unimaginably great" time working in the business and he crowed that "index investing has taken over the world."

Index investing, "the core of what we do" puts the client first, providing a "fair share of market returns" but "is not a free ride," said Bogle. "When the market is bad ... the index fund will give you that fair share of returns."

He ended by noting, that like the DOL fiduciary rule, Vanguard “puts the investor first, last and always.”

Seaspan Preferred Stock (motley fool)

2016-06-09T11:55:00.003-04:00

Was This Redemption a Smart Move for Seaspan Corporation?

www.fool.com/investing/2016/06/07/was-this-redemption-a-smart-move-for-seaspan-corpo.aspx

Matthew DiLallo

(TMFmd19)

Jun 7, 2016 at 9:45AM

Image source: Getty Images.

Seaspan Corporation (NYSE:SSW) has been busy this year. Through a series of transactions, the company raised roughly $750 million in capital, which it plans to use to fund its upcoming newbuild deliveries as well as refinance some higher cost capital. It's that latter goal that the company was recently able to complete after it redeemed the rest of its Series C Preferred Shares. It's a move that made a lot of sense given that a looming deadline would make those preferred shares much more expensive.

Seaspan Corporation's preferred method of raising cash

Seaspan Corporation's initial offering of Series C Cumulative Redeemable Perpetual Preferred Stock was completed in early 2011. At that time the company priced $250 million of the shares at an initial rate of 9.5% per year. Those funds were intended to provide the company with cash to make vessel acquisitions or investments. A few months later the company priced another $100 million shares, which further bolstered its cash position to take advantage of growth opportunities.
At a 9.5% annual yield, the price for this series of preferred stock was rather steep, but given the company's capital needs it was the price it needed to pay to fund its ambitious growth plans. Further, by going the preferred route the company wouldn't risk overextending itself with debt, nor diluting existing shareholders. It's that hybrid feature of the preferred that's appealing, which is why Seaspan Corporation isn't the only containership leasing company that uses preferred stock to finance growth. In fact, just last year rival Costamare (NYSE:CMRE) issued $100 million of Series D Preferred Stock at an initial yield of 8.75%. Costamare chose this route to raise cash for vessel acquisitions and investments so that it too could avoid additional debt and dilution.

Reading the fine print

One problem with Seaspan Corporation's preferred stock is the fact that this particular series was about to get much more expensive. That's because one of the features was a provision that would lead to a substantially higher dividend rate if Seaspan Corporation didn't redeem them by a specified date. In this case the dividend rate would increase by 1.25 times on each dividend date after January of next year up to a maximum of 30%.
This wasn't the only time Seaspan Corporation has had to include a dividend escalation feature in its preferred shares. The company's recent offering of Series F Cumulative Preferred Shares is another example. While these shares feature a lower initial yield of 6.95% for the first five years, that rate will increase by 1% every year after the fifth anniversary until it hits a maximum of 10.5%. That said, there is an acceleration feature whereby the rate jumps to 10.5% if the company doesn't complete a material transaction by the end of next year. That material transaction is either the acquisition of all the membership interests in its Greater China Intermodal (GCI) joint venture with the Carlisle Group (NASDAQ:CG) or the acquisition of all the assets owned by that joint venture. In other words, this particular series of preferred stock was issued to effectively guarantee that Seaspan Corporation has the capital it needs to facilitate Carlisle Group's exit of its investment in the joint venture.
Given these dividend escalation provisions Seaspan Corporation is often left with no choice but to redeem its preferred shares before they get more expensive. That's certainly the case with the Series C redemption and could be the case next year with the Series F Preferreds if the company doesn't take out Carlisle Group's interest in its GCI joint venture to stave off that escalation clause.

Investor takeaway

Containership companies like Seaspan Corporation and Costamare rely on preferred shares to raise capital in order to fund growth. However, this capital doesn't come cheap and it often can get more expensive due to the fine print, though it can be a better short-term option than more debt or dilution. That said, the somewhat short-term nature does force these companies to reshuffle their capital deck so to speak, which is what Seaspan Corporation is doing by making the smart move to redeem its Series C before they get too expensive.

think twice before taking out a loan from your 401k (irs.gov)

2016-06-01T10:13:00.002-04:00

Know the consequences of 401(k) plan hardship distributions

Your 401(k) plan may allow you to withdraw money before you actually retire for certain events that cause you to suffer a financial hardship. For example, your plan may allow a hardship distribution to pay for you, your spouse, your dependent or your primary plan beneficiary’s:
• medical expenses,
• funeral expenses or
• tuition and related educational expenses.
However, you should know the following consequences before taking a hardship distribution:
• The amount of the hardship distribution will permanently reduce the amount you will have in the plan when you retire.
• You must pay income tax on any previously untaxed amount of the hardship distribution.
• You may also have to pay an additional 10 percent tax, unless you are 59½ or older, or qualify for another exception.
• You may not be able to contribute to the plan for six months after you receive the hardship distribution. Your 401(k) plan helps you save money for your retirement while you’re working. So, carefully consider the consequences and all your alternatives before taking a hardship distribution. Date: 06/01/2016 _________________________________________________________________more information on IRS.gov.
• Retirement Topics – Hardship Distributions – information on the circumstances under which a 401(k) plan may allow a hardship distribution.
• Retirement Plans FAQs Regarding Hardship Distributions – questions and answers on the types of hardships that qualify for these distributions and the maximum amount of these distributions.
• Publication 575, Pension and Annuity Income – explains how retirement plan distributions are taxed.
• Retirement Topics – Exceptions to Tax on Early Distributions – information on when you don’t have to pay an additional 10% tax on early distributions.

How working in retirement can affect social security benefits (from Fidelity)

2016-04-21T18:22:00.002-04:00

Do you plan to work in retirement? If so, you need to be aware, if you’ve begun taking Social Security benefits, of how your Social Security income may be taxed—and the earned income thresholds that determine the level of your taxes and any reductions in benefits.

Thirty-seven percent of people in a recent AARP survey indicated that they plan to work either full time or part time during retirement.1 Why? In addition to the financial benefits, many older workers find that a job can add valuable structure to their day and provide the mental stimulation that comes from interacting with co-workers, clients, and other work associates.

Among those who plan to work in retirement out of financial necessity, a survey by the Transamerica Center for Retirement Studies found 43% expected to use the money to cover essential expenses, 37% to pay for health care, and 20% to save more for retirement.2

Whatever your reason for considering working in retirement, it’s a good idea to know how doing so will affect your Social Security benefits and your tax bill. Here are the facts plus some strategies to consider.

Temporary benefit reductions for earned income

Note that “earned” income includes wages, net earnings from self-employment, bonuses, vacation pay, and commissions earned—because they are all based upon employment. Earned income does not include investment income, pension payments, government retirement income, military pension payments, or similar types of “unearned” income.

The earliest age at which you are eligible to claim Social Security benefits is 62. If you claim your benefits and continue to work, there is an earnings restriction until you reach your full retirement age (FRA) of 66. If you have earned income in excess of $15,720 in 2016, your benefits will be reduced by $1 for every $2 of earned income over the $15,720 limit.

If you reach your FRA during 2016, the limit for earned income rises to $41,880 and the benefits reduction is $1 for every $3 earned over the limit until the month you reach your FRA. After that, there are no earnings limits and no benefit reductions based upon earned income.

For example, if your monthly benefit was $2,000, here is how much your benefit would be reduced for various levels of earned income at certain ages:

These benefits are not truly “lost,” however. If your benefits have been reduced due to earning too much prior to reaching your FRA, you will get these benefits back at your FRA when your monthly Social Security check will be increased to account for benefits withheld earlier due to excess earnings.3

Income tax implications

Social Security benefits are subject to federal income taxes above certain levels of “combined income.” Combined income consists of your adjusted gross income (AGI), nontaxable interest, and one-half of your Social Security benefits. (See: "," for more information.)

For individual filers with combined incomes of $25,000 to $34,000, 50% of your Social Security benefit may subject to federal income taxes. If your combined income exceeds $34,000, then up to 85% of your Social Security benefits could be taxed.

For joint filers with combined incomes of $32,000 to $44,000, 50% of your Social Security benefit may subject to federal income taxes. If your combined income exceeds $44,000, then up to 85% of your Social Security benefits could be taxed.

Regardless of your income level, no more than 85% of your Social Security benefits will ever be subject to federal taxation.

Additionally, 13 states also tax your Social Security benefits. The rules and exemptions vary widely across this group so it is wise to research the rules for your state or consult with a tax professional if this affects you.4

Social Security and Medicare taxes

In addition to federal and possibly state income taxes, you will pay Social Security and Medicare taxes on any wages earned in retirement. There is no age limit on these withholdings, nor any exemption for any sort of Social Security benefits status.

The good news is that these earnings can also count toward the calculation of your benefits: Social Security checks your earnings record each year and will increase your benefit, if appropriate, based on these additional earnings.5

What if you are making much less in retirement than before? Could it hurt your benefits? The answer is no, because the benefit payment is still based on your 35 highest years of earnings. At worst, there would be no impact; at best, it could help if this replaces any of the lower 35 years.

The big decision: When to claim Social Security

When to claim Social Security benefits will be one of the most important decisions that you make regarding your retirement, along with how to take retirement income from your various retirement accounts and how you will fund your health care needs in retirement. The following chart shows the difference for someone turning 62 in 2016. Let’s assume his or her annual salary at retirement is $100,000. The first set of numbers on the chart shows the benefit amounts he or she would receive by claiming at various ages.

The bottom row of the chart expresses the differences as a percentage of the benefit amount received by claiming at your FRA for someone born in the years from 1943 to 1954.7

A change in the rules in late 2015 closed the door on the popular claiming strategy for couples that allowed one spouse to file and suspend his or her benefit while the other spouse files a restricted application for a spousal benefit based on the first spouse’s earnings record. This option ends as of April 30, 2016.

Read Viewpoints: "New Social Security Rules."

You should also be aware of a special rule for the first year of retirement. This rule allows you to get a full Social Security check for any whole month you’re retired, regardless of your yearly earnings. This helps people who retire in midyear or later who have already earned more than the annual earnings limit.

Going back to work—meet James

In our hypothetical example, James, age 64, retired at 62 from a plumbing supply company in the Chicago area, and claimed Social Security benefits as soon as he was eligible, at 62. James misses not having some structure in his day. He loves home improvement and helping people, so he found a job at a big box retailer. His wife, Arlene, age 61, is still working part time. Both have FRAs of age 66.

Three Social Security options for James to consider

Social Security do-overs are allowed within 12 months of commencing benefit payments.8 In James’s case, he missed this window for a do-over. You are allowed one lifetime do-over, or withdrawal of benefits, and you must repay all benefits received. This includes, in addition to your own benefits, any benefits received by other family members based upon your earnings record, whether or not they are living with you; any monies withheld for Medicare payments; and any garnishments that may have been withheld from your benefit payments. When you resume benefits at a later date, they will be at the starting amount for your age and earnings record at that new time.
Suspending your benefit is allowed once your reach your FRA. James can do this when he turns 66 if he chooses. The advantage is that his benefit will be suspended at the level at the time of suspension, and it can now grow until he resumes taking it at any point up until age 70, when it reaches its maximum level. The advantage for James is the accrual of delayed retirement credits, which will result in a higher benefit level when he resumes his benefit.9 However, he will pay taxes on earned income. Under the new rules, once James suspends his benefit, no one, including his spouse, can receive a benefit from his earnings record.
Filing a restricted application. Since Arlene did not turn 62 prior to December 31, 2015, she would not be eligible to file a restricted application for a spousal benefit based upon James’s earnings record once she reaches her FRA, to allow her own benefit to continue accruing. She would have to choose between filing a spousal benefit or her own benefit when she files. This might be advantageous for the couple, and could provide a reason for James to continue drawing his benefit.

Benefits of working longer

Working into retirement can help in your retirement planning, especially if your savings are running a bit behind your goals. Continuing to work allows you to keep building retirement savings. If you meet the eligibility requirements, you can contribute to a 401(k) or other tax-deferred workplace savings plan, a health savings account (HSA), and an IRA, even if you are collecting Social Security. You can also make catch-up contributions, which enable you to set aside larger amounts of money for retirement. The combination of the added savings, tax-deferred growth potential, the ability to delay claiming Social Security benefits, and the ability to defer tapping into your savings can be powerful, even at the end of your working career.

Learn more

Read Viewpoints:

1. "Retired, But Working," WealthManagement.com.

2. Ibid.

3. "How Work Affects Your Benefits," SSA.gov.

4. The states are: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont, and West Virginia.

5. "Social Security and Medicare Payroll Taxes at 66+," AARP.org.

6. "Social Security Benefits Calculator: When Should You Claim Yours?" AARP.org. Social Security benefits are calculated based on an estimated annual salary that is representative of the person’s average salary over his or her work history and including the top 35 years of earnings.

7. "Social Security Benefits," SSA.gov.

8. "Retirement Planner: If You Change Your Mind," SSA.gov, and "3 financial do-overs with Social Security," Bankrate.com.

Past performance is no guarantee of future results.

9. "How to Suspend Social Security Benefits and Restart Them at a Higher Value," PBS.org.

The new Dividend Aristocrats (from Contrarianoutlook.com)

2016-04-11T12:03:00.002-04:00

The 4 Newest Dividend Aristocrats

Brett Owens, Chief Investment Strategist
Updated: April 11, 2016

A couple of weeks ago, I discussed the value of investing in the S&P 500 Dividend Aristocrats, the 50 companies in the index that have hiked their dividends for at least 25 consecutive years.

It boils down to performance: in the last decade, this vaunted group has returned an average of 10.3% a year (including dividends), compared to just 6.3% for the S&P 500 as a whole.

It’s also a list that doesn’t change much. Last year, there was just one adjustment, and it was a removal, after Family Dollar Stores was taken over by Dollar Tree (DLTR).

But in the next 14 months, four companies will punch their tickets to this elite club. Should you invest in them? Here, from worst to first, is my take on the Dividend Aristocrats “class of 2016.”

Linear Technology: Reboot Needed

Analog chipmaker Linear Technology (LLTC) raised its dividend for the 24th straight year in February, making it eligible to enter the pantheon of Dividend Aristocrats in early 2017. The stock currently yields 2.9%.

That’s the good news. The bad? The market for analog chips, which are used in everything from cars to digital cameras, is highly competitive and fragmented. The largest player, Texas Instruments (TXN), controls 18%, compared to just 3% for Linear.

That means the company will have to spend heavily just to hold its own, though it does improve the odds of a takeover by TI or another competitor.

Linear can only hope, because its profits are caught between tough competition and the sluggish economy: in its fiscal 2016 second quarter, earnings per share (EPS) slipped to $0.50 from $0.51 a year earlier, and the company is only expected to report EPS of $1.99 for the full year, down from $2.12 in fiscal 2015.

And if you thought a slow grower like Linear would at least be cheap, you’d be wrong. Its forward P/E ratio clocks in at 22.8, well above Texas Instruments (19.3) and its five-year average (20.5).

Praxair: Sales Vaporized

Praxair Inc. (PX) also marked its 24th straight dividend hike earlier this year. The stock yields 2.7%, and a 25th increase next spring looks like a slam-dunk, thanks to its reasonable 52.9% payout ratio (or the percentage of earnings paid out as dividends).

The company supplies industrial gases, like acetylene (for welding), helium and krypton (used to make windows and semiconductors).

But like Linear, Praxair operates a cyclical business. It also gets 45% of its sales from outside North America, so it’s being hit by the stronger greenback: in the fourth quarter, foreign exchange cut its sales by 10%.

Praxair offset that with cost cuts, which helped it grow adjusted EPS by a penny, to $1.47 from $1.46. But that only goes so far: what it really needs is a manufacturing rebound—particularly in China and Brazil—and I don’t see that happening anytime soon.

General Dynamics: The Pentagon’s BFF

General Dynamics (GD) became a Dividend Aristocrat with gusto in early March, marking its 25th year of dividend hikes by announcing a 10% increase, payable in May.

Hikes like that are par for the course for the defense giant, which has raised its payout by 230% since 2006. Keeping its membership in the Dividend Aristocrat club will be a cinch: its payout ratio sits at just 29%.

The knock on General Dynamics is its reliance on the US government (57% of 2015 revenue) to buy its tanks, ships and computer systems. That’s a risk, to be sure, but with terrorist threats on the rise, I don’t see that spending slowing down anytime soon.

Wall Street is also bullish: the average analyst estimate sees EPS rising 3.2% this year and 7.4% in 2017.

Even better, these overwrought worries have dropped the stock’s forward P/E ratio to 13.8, below competitors likeRaytheon (RTN), at 18.0, Rockwell Collins (COL), at 17.3, and Lockheed Martin (LMT), at 18.6.

That hasn’t been lost on General Dynamics’ board, which authorized a 10-million-share buyback in December. That’s a big plus, because fewer shares translate directly into higher EPS and share prices.

The Valedictorian: Roper Technologies

Roper Technologies Inc. (ROP), my top pick among these four, has the one ingredient General Dynamics lacks: diversification.

Roper is a Florida-based industrial firm that increased its payout for the 24th consecutive time in January. Look for it to hit the magic number in January 2017.

It’s a good thing companies don’t need a high dividend yield to become Dividend Aristocrats, or Roper’s 0.68% would surely disqualify it. But that low yield masks an incredible growth story: in the past decade, the payout has jumped 410%.

Roper has four main segments: medical and scientific imaging, radio-frequency ID systems (mainly used for toll roads, security cards and remote monitoring), industrial technology, and energy systems and controls.

The stock’s down 6.5% this year on worries weak oil prices will keep weighing on energy firms’ spending.

But energy is Roper’s smallest business, chipping in just 16% of its total revenue in 2015. When you strip out energy and industrial products—the two most volatile divisions—you’ll see that the others (representing 63% of total revenue between them) are going gangbusters, notching a combined 14.6% sales increase in Q4, and an 18.8% rise in operating profits.

Meantime, Roper trades at 24 times its forecast earnings over the next 12 months and just 20 times free cash flow. That’s a reasonable price in light of its growth potential, both organically and through acquisitions.

Get What's Yours -- life insurance companies hanging on to your benefits (WSJ)

2016-03-30T16:06:00.001-04:00

Why Decades-Old Life-Insurance Benefits May Still Go Unpaid

Smaller insurers balk at searching databases to check if policyholders have died; ‘It wasn’t priced in’

LESLIE SCISM

Updated Feb. 26, 2016 9:41 p.m. ET

Some life insurers are fighting back against state officials who insist it is the companies’ job to check for dead customers.

The battle, led by small and midsize insurers, is reviving a touchy debate: When a policyholder dies, is it up to the insurance company or the beneficiary to make sure the benefit gets paid?

Historically, the burden has been on beneficiaries to file a claim after a death. Although that is still the typical way death benefits get paid, state authorities in the late 2000s began to compel insurers to turn over policyholder rosters so they could be checked against death databases.

Most large insurers agreed to the audits even though they believed the law didn’t require such extensive efforts. They decided that it wasn’t worth the reputational risk to fight the matter, and that new computer software made the change a logical one. Many were, in fact, already using similar checks to identify dead annuity owners in order to discontinue these customers’ payments.

So far the U.S.’s 22 biggest life insurers by premiums—including MetLife Inc., Prudential Financial Inc., New York Life Insurance Co.—have paid out more than $7.4 billion on old policies, either directly to beneficiaries, or to state unclaimed-property departments. The 22 insurers have agreed to regularly check a death database and conduct thorough searches to track down beneficiaries, according to officials in Florida, one of the lead states on the issue.

Now, authorities are encountering resistance as they try to get lesser-known outfits to do the same.

These insurers maintain that the long-standing system of expecting beneficiaries to file claims works well for nearly all deaths. They are also driven by economics—many of these insurers historically have sold small policies, not the million-dollar ones common at some large insurers, so they have less premium money flowing in to cover the costs that they say accompany the audits.

PREVIOUSLY

Life Insurers Skimp on Payouts: States (April 28, 2011)
Insurers Pressed on Lost Policies (Aug. 13, 2012)
Are You Owed an Insurance Payout? How to Check (Feb. 22, 2013)

Kemper Corp., a Chicago-based insurer with a market capitalization of $1.4 billion, has been involved in legal fights in at least a half-dozen states and hired lobbyists to make its case in some others.

“For more than a century, Kemper has paid all valid life-insurance claims in accordance with our policy terms and all state regulations,” the company said in a statement. “We believe it is illegal and improper for officials” to effectively demand retroactive changes to contractual terms. Kemper says about half of the roughly 20 states so far with new laws on insurers’ use of database searches limit the requirements largely to new policies. The other states apply the rules to existing policies.

The smaller companies’ opposition is emerging at a time when life insurers’ profits are being squeezed by low interest rates and increased competition.

The economics of searches are different between large and small insurers, particularly those such as Kemper that historically have focused on households of modest incomes. The average policy on Kemper’s books, for instance, has a death benefit of about $5,200, for which the consumer pays about $216 annually in premium.

Kemper, like some other smaller insurers, didn’t start asking customers for Social Security numbers until the 1980s, and for many years didn’t require exact birth dates, instead merely noting the buyer’s age at the time of sale. That makes it difficult to get reliable results in a database search, meaning insurers have to sift through paper records to fill in the gaps of identifying information. The costs, they say, quickly eat into profit generated by the small premiums, although state officials maintain those costs aren’t substantial.

“It wasn’t priced into the policies,” said Kimberly Moore, a vice president with N.C. Mutual Life Insurance Co., in Durham, N.C. She said the company still has policies on its books from decades ago with payouts in the hundreds of dollars.

Last year, N.C. Mutual successfully lobbied against a provision in a new state law that would have required life insurers to run all policyholders’ names through a death database. Kemper lobbied as well.

Ms. Moore said N.C. Mutual searches extensively for a policyholder and beneficiaries when the insured reaches a policy’s “maturity” age, typically age 100. “We feel we do a good job of finding people,” she said.

Many state officials see the issue as one of the most important they have tackled for consumers.

“I’ve talked to lots of people and I haven’t had more passionate and angry conversations than when they hear that insurance companies aren’t paying out benefits,“ said Illinois Treasurer Michael Frerichs. Kemper sued the Illinois State Treasurer in October to limit the scope of the state’s audit.

“At the end of the day, no one sits down and signs a life-insurance policy saying it may or may not be paid,” Mr. Frerichs said. “They don’t read the fine print.”

Florida’s chief financial officer, Jeff Atwater, called concerns about costs “a hollow argument,” saying none of the life insurers are small enough to qualify as “moms and pops.” Also, he contends, insurers are reluctant to allow audits because holding on to overdue benefits enables them to keep and invest the money longer.

Industry officials don’t dispute that overdue benefits have built up over time. But trade group American Council of Life Insurers says the problematic policies are a tiny percentage of the $1 trillion that was paid the conventional way over the past 20 years.

A growing number of consumers are applauding states’ efforts.

Kyle Haskins, a junior at Xavier University in Cincinnati, recently learned from Florida’s unclaimed-property department that MetLife had turned over about $74,000 in proceeds from a policy that his grandmother, who died about 15 years ago, had bought when she was a special-education teacher in Ohio.

“It is kind of shocking they have billions of dollars that haven’t been paid out in life-insurance policies,” he said of the industry. “I’m not upset or mad: I understand that’s how business works.”

MetLife said it couldn’t comment on any specific case for privacy reasons, but that it is “thrilled that Mr. Haskins has received the life-insurance proceeds he was due.”

Money Lessons -- You Don't Want to Learn These the Hard Way (bankrate.com)

2016-03-09T14:44:00.000-05:00

8 personal finance lessons you must master by age 40

By Jennie L. Phipps • Bankrate.com

iStock.com/gilaxia

8 money lessons to learn by age 40

If you've hit 40 and managed to avert a midlife crisis -- congratulations. That sporty red convertible at the dealer showroom can wait if you want to be smart about money management.

Bankrate offers 8 personal finance lessons that everyone should know by age 40. Young precocious adults who adopt these lessons early will not be sorry, and late learners still have time to catch up. Read on to learn the important financial facts of life.

iStock.com/pixdeluxe

Money is freedom

Figure out your net worth and, after you get over the shock, have a recovery plan. You don't have to be wealthy, but you do have to have enough that you aren't a slave to the shortfall.

"After getting on a budget, a lot of people feel like they've gotten a raise even though their income hasn't changed," says Dave Ramsey, a Tennessee-based financial adviser and media personality, who bases his approach on mistakes he personally made.

Ramsey offers no-brainer personal finance lessons that most people can follow: "Do a written budget every month before the month begins. Give every dollar of income a name so you know where it is going. Include a line for how much you want to save each month. Then, stick to the plan."

iStock.com/KatarzynaBialasiewicz

No relationship is perfect

Working it out is usually cheaper than calling it quits. Even after the relationship is long over, getting along with your ex is cheaper than fighting over the kids or whether or not both spouses are paying their share.

"Divorce isn't good for your pocketbook. It is a long, messy and expensive process," says Jay Zagorsky, a research scientist at The Ohio State University who has studied the cost of divorce for nearly 20 years.

His research demonstrated that on average, divorce drops a person's wealth overall by 77%. "Wealth starts declining well before the final decree, and after divorce, people don't suddenly start with a clean slate," he says.

In other words, it's cheaper to keep her (or him).

iStock.com/carrollphoto

You can't buy security

Insurance can help, but it wasn't meant to pay routine costs. Its purpose is to cover devastating financial losses.

"Many people tend to purchase coverage with low deductibles, which can be costly. Because states have low liability limits, people think they should start there. But for most individuals, those limits are woefully inadequate, so they end up paying a lot for insurance that doesn't cover enough," says Robert Hoyt, who heads the Risk Management and Insurance Program at the University of Georgia.

Someone with lots to lose -- a home, a car and future income -- is better off picking a plan with high deductibles, he says, and planning only to claim when there is a devastating loss that the insured can't pay for otherwise. In other words, you collect when the house burns down or the car is totaled or the accident causes major injury.

"Assess what you can afford with high limits of loss and then add a personal umbrella, which can be cost-effective and provide protection if you are faced with tens of thousands (of dollars) in losses," Hoyt advises.

iStock.com/sudok1

Credit is a tool

Becoming an expert at using credit will improve your life.

At this stage, you're likely dealing with a mortgage, car loans and children entering college. "A healthy credit score is vitally important to you," says Bruce McClary, vice president of public relations and communications for the nonprofit National Foundation for Credit Counseling.

If you examine your credit score and you don't like what you see, chances are you haven't paid your bills on time. "Paying on time counts for about one-third of your score," McClary says.

Committing to paying everything on time is the obvious solution to this problem.

It also pays to check your credit report carefully for credit killers, such as identity theft or inaccurate reports. "There are a lot of those problems out there," McClary says.

Check your credit report for free at myBankrate.

Finally, at your age, you ought to be working to pay off debt and keep balances low, he says. "Focus on power-paying those balances and getting rid of them as fast as possible."

This will give you more credit flexibility if you really need to borrow because you have a health emergency, want to start a business or need to replace the roof. "A solid-gold credit score will make borrowing for any of these easier," McClary says.

iStock.com/Csondy

Keeping up with the Joneses is a no-win

As humorist Will Rogers is credited for saying: "Too many people spend money they haven't earned to buy things they don't want to impress people that they don't like."

Envy was one of the "7 deadly sins" and a route to hell, says Susan Matt, chair of the history department at Weber State University in Ogden, Utah, and the author of "Keeping Up With the Joneses: Envy in American Consumer Society, 1890-1930."

"Yesterday, envy was a sin; today, it is one of the fundamentals of our consumer-driven society," she says.

"People think the sky is the limit. When they get what they want, they want the next step up. People have never-ending desires, and they are never satisfied."

Is that bad? "It keeps our economy moving," she says. "But I don't think it makes people any happier."

iStock.com/RBFried

You can count on uncertainty

Trust us: Jobs don't last forever, and neither does excellent health.

The best hedge against poor health, job loss or other unforeseen setbacks is a financial plan that will help you navigate the shoals until you get back on your feet, says Chris Hogan, author of "Retire Inspired" and a popular speaker about personal finance issues.

"The definition of insanity is doing the same thing over and over and expecting a different result," Hogan says. "If you don't have a plan, you keep doing more of the same, and you never have anything to show for it."

To get around this conundrum, "you have to have an awareness of where you are now, an understanding of what it will take to get there and the determination to work your plan," Hogan says.

iStock.com/fotomenis-it

Everybody needs an ace in the hole

You need a financial plan B that doesn't count on another person -- not even the love of your life. It's not disloyal to figure out an answer to the question, "How will I support myself if X happens?" whether X is divorce, death, disability or something else.

"'Everybody Loves Raymond' explained it best,'" says Cindy Hounsell, president of the Women's Institute for a Secure Retirement, or WISER.

Here's the exchange on the TV episode that she's referring to:

Debra: Ray and I were talking about wills, and he doesn't want to make one.

Robert: Oh, why not?

Debra: He thinks it's going to tempt fate.

Robert: No, no, silly. If you don't have a will, you're tempting fate. "I don't need a will. I'm gonna live forever." Manhole!

Ray: I don't know.

Robert: Raymond, listen to me. You need to have a will and eat a fibrous breakfast every morning and nothing can touch you.

Hounsell isn't so sure about the fibrous breakfast, but she thinks the will part is right, along with savings and insurance. "Anybody who is dependent on somebody else to make ends meet -- or even if you just depend on yourself -- you need a plan for what you're going to do when that goes away," she says.

iStock.com/AWelshLad

Working forever isn't a retirement plan

You just can't work forever.

Author Chris Hogan says, "I have a friend who was diagnosed at 48 with early onset Alzheimer's. He knows life has changed, but he can't do anything about it. When people say to me, 'I love what I do and I plan to work forever,' I tell them about my friend and ask them, 'What are you going to do if your mind or your body won't allow you to keep working?"'

Having a retirement savings plan is key. "The earlier you start, the longer your money works for you and the greater your chance of amassing a nice nest egg. It's a snowball effect. You start small and it builds," says Brian Hogan, director of small-business retirement products for Fidelity.

Or as Chris Hogan says, "It is never too early or too late to start saving."

Social Security Basic Facts (bankrate.com)

2016-03-08T13:04:00.002-05:00

RETIREMENT

How Social Security works: Nuts and bolts of the benefits program

By Marilyn Bowden • Bankrate.com

How Social Security works

FPG/Archive Photos/Getty Images

How Social Security works

In 1935, in the midst of the Great Depression, President Franklin D. Roosevelt signed the Social Security Act, creating an insurance program to protect American workers from dire poverty in old age. It has since become a significant thread in the fabric of the national economy. In 2015, more than 59 million Americans -- or about 18.3% of the population -- received close to $870 billion in Social Security benefits.

Over time, amendments to that original act expanded Social Security to include benefits for disabled workers as well as dependents and survivors of the insured. Later, in 1965, Medicare health insurance for older Americans was added to the package.

In spite of these changes, however, the way Social Security works has remained fundamentally consistent throughout its history.

Atanas Bezov/E+/Getty Images

Where does the money come from?

The funds tapped for Social Security benefits come from 3 sources. These are:

Payroll taxes;
Interest on 2 trust funds (one for Old-Age and Survivors Insurance, the other for Disability Insurance);
Income taxes from Social Security recipients whose incomes exceed a certain threshold.

The lion's share -- about 85% -- is drawn from payroll taxes.

In any given year, these taxes were originally calculated to cover prevailing needs, but in 1983, Congress raised them in anticipation of a considerable rise in expenditures once the baby boomer generation reached retirement.

Currently, 6.2% of earnings are deducted from an employee's paycheck for Old Age, Survivors and Disability Insurance, up to the maximum taxable income for this purpose of $118,500. Everyone, regardless of income, is assessed an additional 1.45% to cover Medicare insurance. Employers must match the amounts deducted.

Swell Media/UpperCut Images/Getty Images

How does the government use these payroll taxes?

The money earmarked for Social Security cannot be used to cover other government expenses until all Social Security expenses have been met, according to the U.S. Government Accountability Office. However, whenever Social Security taxes exceed the amount needed to meet expenditures, the surplus goes into the U.S. Treasury's General Fund, where it is used to reduce the overall federal deficit.

The money is exchanged for special issue, non-tradable Treasury bonds, with the interest from the bonds accruing to the 2 trust funds. The bonds are redeemable whenever Social Security revenues fall short of expenditures.

This practice gives rise to the common perception that the government raids Social Security to fund other programs. But according to the U.S. Treasury, it's in line with the government's unified budget concept, which allows the flow of funds from one program to be applied to another as needed. Without that measure, it's argued that Congress would have to raise taxes, cut payout amounts or borrow from the public.

MAVROUDAKIS FOTIS PHOTOGRAPHY/Moment/Getty Images

Does everybody have to pay FICA taxes?

Nearly everyone working in the U.S. must pay Social Security and Medicare taxes, though there are a few exceptions.

These include federal employees hired before 1984, although since 1983 they have had to pay the Medicare portion and are therefore eligible for hospital insurance. Other groups exempted from payroll taxes are railroad employees with more than 10 years of service, employees of those state and local governments who choose not to participate in Social Security, and children under the age of 21 who are paid by a parent for doing household chores. Children over 18 years of age who work in a family business are not exempt from Social Security payroll taxes.

Some wage earners who are eligible for Social Security need to follow special rules in order to be compliant -- for example, the self-employed, military personnel, domestic workers, farm workers and people who work for a church or church-controlled organization that does not pay Social Security taxes.

Monty Rakusen/Cultura/Getty Images

Is everyone who pays FICA taxes eligible for benefits?

In general, workers must accumulate a minimum of 40 work credits -- the equivalent of 10 years of paid labor -- to be able to collect retirement benefits. In 2016, you must earn at least $1,260 to get 1 credit, up to a maximum of 4 credits each year.

Qualifying for disability benefits also works on a credit system, but the rules are different depending on the age of a worker when he or she becomes disabled. For example, someone whose disability began before age 24 can qualify for benefits with 6 credits earned over the previous 3 years. Someone over 62, however, must earn 40 credits, at least 20 of them in the 10 years before becoming disabled.

HeroImages/Getty Images

What is COLA and how is it calculated?

COLA is an acronym for the Social Security Administration's cost-of-living adjustment. For many years, the payments were static. Then in 1950, Congress approved an increase for the first time, and for the next 25 years, raises required an act of Congress. In 1975, annual adjustments became automatic. They're based on the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers as computed by the federal Bureau of Labor Statistics.

In 2010, 2011 and again this year, there was no cost-of-living adjustment, since there was no increase in the consumer price index used to determine automatic annual hikes. Monthly Social Security benefits remained stagnant.

Proposals currently under consideration suggest tying Social Security's COLA to other measures of inflation. One idea is to use the Bureau of Labor Statistics' Chained CPI for All Urban Consumers. Proponents say it's a more accurate measure of consumer behavior when prices fluctuate. This would likely result in lower COLAs.

Some proposals advocate using other measures of inflation based on the purchasing patterns of the elderly. Since older people are more vulnerable to fluctuations in health care costs, which go up more rapidly than other consumer goods, this would tend to increase monthly Social Security benefits.

TOP WEBSITES FOR INCOME INVESTORS (KIPLINGERS)

2016-03-03T10:18:00.000-05:00

KIPLINGER'S | March 2016

9 Top Free Sites for Income Investors

Five years ago, Kiplinger’s turned to longtime investment writer and in-house income guru Jeff Kosnett to launch a newsletter designed to steer income-starved readers to the best investments for dependable, spendable income. Today, Kiplinger’s Investing for Income continues to attract a growing army of satisfied readers.

How does Jeff uncover opportunities for his subscribers month after month? Of course, he spends a lot of time interviewing money managers and mutual fund masterminds, as well as the men and women who actually run real estate investment trusts (REITs) and master limited partnerships (MLPs). And he mines the Internet, searching for great ideas and studying the raw data to identify broad trends and profitable prospects. We asked Jeff to share with Kiplinger.com readers his favorite free sources for reasoned discussion and hard-to-find financial data. Bookmarking these sites will be a valuable step toward making you a more successful investor.

Closed-End Fund Center

Web address: www.cefa.com

Key data: Discounts and premiums to net asset value

Best for: Sorting and screening 629 closed-end funds

The keys to understanding any closed-end fund are data about current and historic discounts and premiums to net asset value, distribution rates, whether and how much the fund borrows (leverage), and total return on net asset value. This site offers all of that and more, plus the tools to sort and screen more than 30 varieties of funds in too many ways to count.

Kosnett Comment: CEFA’s tables show each fund’s distribution yield next to its income yield. The two won’t match, but they should be fairly close. If the income figure is low but the distribution is high, the fund is selling assets or issuing new shares to maintain the illusion of a fat yield. It could be headed for a distribution cut.

Eaton Vance Monthly Market Monitor

Web address: www.eatonvance.com

Key data: The numbers on all aspects of income investments

Best for: Total returns and average duration of bonds

This fund company’s site is loaded with free stuff. The best is the monthly monitor (accessible in the site’s Institutional Investors section): 40-plus pages of charts and tables about all aspects of stocks, bonds, bank-loan funds, commodities, industry sectors and more. All this — including total returns and average duration of more than 20 kinds of bonds — is nicely laid out on single pages.

Kosnett Comment: The page called “fixed income spread analysis” uses simple bar charts to show the current and past yield advantage of various categories, such as junk bonds or preferred stocks, over Treasuries. When the spread is unusually narrow, there’s more risk. When it’s wide, it’s usually a good time to invest.

FRED

Web address: www.stlouisfed.org

Key data: 382,000 statistical series from 82 sources

Best for: Financial data, graphs and charts from the government and everywhere else

If you want to see a trend in, say, inflation, growth, interest rates or stock-market returns for just about any period, you’ll find it here. This takes the place of any almanac, encyclopedia or reference book — and it’s updated daily. FRED is the acronym for Federal Reserve Economic Data and is the brainchild of the Federal Reserve Bank of St. Louis.

Kosnett Comment: You may go weeks or months without using this, and then you’ll refer to it several times in one sitting. It’s comforting to know that someone has gone to the effort of assembling all this info in one place.

FRED

Investing in Bonds

Web address: www.investinginbonds.com

Key data: Real-time market data on bond trading action and prices

Best for: Owners (or potential owners) of individual corporate and municipal bonds and anyone else who wants to see how bonds are priced and what they are yielding at any given time

Kosnett Comment:The Securities Industry and Financial Markets Association (SIFMA), the bond dealers’ trade association, runs the site and has a news feed as well. Some of the commentaries, though, are dated.

Robert W. Baird & Company

Web address: www.rwbaird.com

Key data: Relative yields of municipals and Treasuries

Best for: Analysis of taxable and tax-free bond markets

The managers of Baird Core Plus Bond fund and other excellent no-load income funds publish a combination of basics with just enough financial-market-speak to keep the pros happy with their Capital Markets Perspective. The insights live at Baird’s corporate site (address above) not the Baird Funds' consumer site. Offerings include both tax-free bond and taxable-bond commentaries. A recent subject is the tight supply of new bonds, which keeps prices high and yields low. There is also a colorful market commentary called, ahem, The Bull and Baird Blog.

Kosnett Comment: Baird’s municipal bond letter illustrates such basics as the ratio of tax-free bond yields to Treasury yields and the equivalent yield you need to earn on a taxable investment to net the same after-tax income.

Pimco

Web address: www.pimco.com

Key data: Outlooks and forecasts from the fixed-income behemoth (with $1.43 trillion under management) formerly known as the Pacific Investment Management Company

Best for: Investors who like to see commentaries and explanatory articles that put the market’s gyrations in perspective. For example, an article called “Emerging Markets Trying to Turn the Corner” makes the case for some, but not all, investments in those countries. The Pimco blog about the issues of the day is well-presented and with graphics.

Kosnett Comment: The departure of Bill Gross from Pimco changed this site from his soapbox to more of a team effort.

EMMA

Web address: www.emma.msrb.org

Key data: Muni bond trading details

Best for: Screening the tax-free bond universe for top yields

Electronic Municipal Market Access, from the Municipal Securities Rulemaking Board, shows every municipal bond trade, plus key background information about thousands of issuers. If you own tax-exempts, you can see a price graph for each bond based on months of trades, just as you can chart a stock or a fund. You can also screen the tax-free bond universe in detail. For example, when you search for all AA-rated Arizona water and sewer bonds due between 2024 and 2029, up pop the yields and other particulars.

Kosnett Comment: EMMA is easier to navigate if you know your bond’s CUSIP number.

REIT.com

Web address: www.reit.com

Key data: Historical returns and other performance information for real estate trusts going back to their invention in the 1960s.

Best for: Avid real estate investment trust fans and anyone who wants to see new offerings and news tidbits about the industry and its members. The site is run by the National Association of Real Estate Investment Trusts (NAREIT).

Kosnett Comment: It would be good if NAREIT would link to a resource that provides up to the minute data on the individual REITs’ net asset values and prices to book value. You need a brokerage link to that kind of research.

TCW

Web address: www.tcw.com

Key data: Monthly updates by sector, such as the High Yield and Mortgage Market updates. Find it all under Insights from TCW, a global asset management firm.

Best for: Bond fund investors, especially if you dabble in risky or unusual areas like junk bonds, mortgages and bank loans. There are also excellent forecasts and commentaries from the portfolio managers and analysts.

Kosnett Comment: This is some of the best perspective on individual bond-market segments and what’s driving them up or down.