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Why You Can’t Hide From Inflation

Just because it isn’t making headlines, doesn’t mean inflation is not a serious issue.  We, as advisors, have to deal with on a daily basis.  The following article is filled with great nuggets about inflation.  Here are my favorites:

“According to the US Labor Department, the median weekly wage back in 1988 was $382… or roughly 18,336 ounces of Coca Cola. Today the median weekly wage is $831.40… or just 6,651.20 ounces.”

“$1 would have bought me 48 ounces of Coca Cola 26 years ago. Today that same dollar buys me just 8 ounces. This means that the dollar has lost 83.3% of its value against Coca Cola over the past three decades, averaging roughly 6.6% inflation per year.”

To read more visit ZeroHedge

IRA Pointers At Tax Time

Around this time of the year, when the tax reports are coming to your mailbox, you might be wishing you could do something about your upcoming tax bill. Well, maybe you can for your 2013 return, and for your 2014 return as well!

Did you or your spouse work in 2013? You may be eligible to make a deductible contribution to an IRA. Contribute $1000 and you can save $150 off your taxes, assuming you’re in the 15% tax bracket. The higher your bracket, the more you save. A married couple can contribute as much as $13,000, and save a couple of thousand on their 2013 return. These contributions for 2013 can be made through tax-filing day (without extensions) in 2014. But remember, your contributions can never be greater than your earnings. Also, you cannot make a regular IRA contribution, or a spousal contribution, in any year you are age 70-1/2 or older, even if you are working. Darn.

As a matter of fact, if you will be over 70-1/2 this year, you have to make a minimum withdrawal from your IRA and 401k. The withdrawal is about 4% of the account’s value as of the end of last year. But the calculation changes every year, and the penalty is huge if you forget or take out too little. If this has happened to you, call us for a work-around.

If you have a Roth-IRA, there is no requirement to take the money out, regardless of age. And if you’re earning income from work, you can still make a contribution. There’s no tax deduction, but the money can grow tax-free as long as you live!

If you have a question that you would like us to answer, please email us at or call our office at 860.521.471.


Young Savers: How to Retire a Millionaire

I was quoted in an article the other day about what young people can do to begin saving for retirement.  The article outlines a lot of great concepts and analogies:

  • Early Earl and Late Larry, a great chart showing the time value of money
  • A snowball rolling down a hill is like compounding interest where you can earn interest on your interest.

You can read the article here.

The Risks of Having High Levels of Cash

Investors have been keeping record high levels of cash in their investment accounts and savings accounts.  It’s a logical place to park money for a while. It’s relatively safe, readily accessible and a very common practice.  Unfortunately, many investors are moving to cash without a strategy guiding them.  So what’s the problem with having a high level of cash?

1) Your cash is earning next to nothing. The government is discouraging savings by keeping interest rates low.  They are doing this to push investors into the market and to invest in stocks and bonds.

2) Low interest rates will likely continue. Janet Yellen, the incoming Fed Chair has signaled her intentions to maintain similar policies as her predecessor.  These poor savings rates could continue for the next few years.

3)  Inflation will slowly eat away at your purchasing power.  This slow, ever-present issue catches many investors off guard.

4)  In addition to inflation risk, you also face opportunity risk.  Many investors sat in cash during the last few years, while the markets hit all time highs.  That’s a missed opportunity.

Bottom line: The government is punishing you for saving, and rewarding you for investing.

You need to develop a strategy for your cash. It’s important to treat cash as an asset class.  It needs to serve a specific role in the portfolio.

Contact us today if you’re interested in making your cash work harder.


NU Fixed Account Update

In a recent newsletter by the Association Retired Employees of Northeast Utilities (ARENU) , we wrote about the popular Fixed Account in their 401(k) plan at Fidelity that many NU retirees use. After the article went to press, a major development occurred: The interest rate on the fixed account decreased from 3.5% to 2.75%. That decline is steep – well over a 20% reduction, and it raises a lot of flags for us:

  • The rate has dropped below the long term average inflation figure of 3%. That means the cost of living could outpace the income generated in the fixed account. Retirees who are withdrawing interest on a regular basis will see their income decline.
  • The rate decreased at a time when interest rates elsewhere are holding steady or even increasing. This may be an indication of subpar rates for the foreseeable future in the fixed account.
  • This change has significantly reduced the fixed accounts relative appeal. Now, there are many strategies that are just as competitive as the fixed account and in some cases offer additional benefits.

If you’re concerned about how this change will affect you, please contact us for a meeting. We can work with you to identify a strategy to meet your needs or fill the gap that this rate change caused.