Will You Have to Pay Back Health Insurance Credits?

Millions of taxpayers may end up doing so in 2015.  

If you received a 2014 health insurance subsidy, you may get an unpleasant surprise. When the Health Insurance Marketplace (HIM) went online in late 2013, Americans shopping for coverage were asked to see if they qualified for a subsidy called the Premium Tax Credit. Millions of Americans did receive this federal assistance, which made it easier for them to pay health insurance premiums. PTCs were awarded based on household size and estimated 2014 household income.¹

Of course, estimates don’t always match reality. Some households earned more than they thought they would in 2014. Others experienced life events like divorces, births or deaths. Because of these developments, certain households ended up receiving PTCs that were too large for their incomes and family size.

Is yours among them? If it turns out that way, you may have to pay a percentage of that federal credit back.

How will you know if the 2014 health insurance credit you received was too large? Two new federal forms will help you find out.

Form 1095-A, akin to a health insurance W-2, is being sent out to you from the health exchange where you purchased your coverage. Form 1095-A shows you the total Premium Tax Credit that was paid to the insurer by the government on your behalf in 2014. Form 1095-A will help you (or your tax professional) fill out Form 8962, which is used to calculate the proper size of your 2014 Premium Tax Credit in light of your family size and actual 2014 modified adjusted gross income (MAGI).²

If you ended up receiving a smaller PTC than you should have in 2014, then the IRS will send you a refund representing the difference. If you received a PTC that was disproportionately large, then you are looking at repayment of a percentage of that credit.²

How much could a taxpayer have to pay back? Fortunately, the IRS has capped the repayment amount. The most an individual taxpayer has to pay back is $1,250. The cap for households is $2,500.³   

The IRS also just issued Notice 2015-09, which offers taxpayers facing financial hardships another break related to this issue. Under federal standard tax law, a taxpayer would owe a penalty for failing to repay the excess advance premium tax credits back to the federal government by April 15. A penalty would also be assessed for a taxpayer whose estimated tax payments fall short of the amount due. Well, Notice 2015-09 suspends these late-payment penalties for the 2014 tax year, provided you pay your 2014 federal taxes by April 15 (or October 15 with an extension). So if the IRS notifies you of the overpayment of credits, you can claim relief from the late payment penalty by responding by letter and relief from the estimated tax underpayment penalty via submitting Form 2210 along with your 1040.^1,4

Did you buy your own health insurance even though your employer offered it? If you worked for a big employer that offered a health plan but opted to buy your own health coverage instead, you might be eligible to claim a Premium Tax Credit for 2014 (and get the resulting tax refund). Your employer may or may not send you Form 1095-C, which indicates the employee share of the health insurance premium for the most inexpensive plan that the employer sponsored. If that employee share exceeds 9.5% of your 2014 income and you went out and self-insured last year, you can claim a PTC for 2014. If your employer doesn’t send you Form 1095-C, request it.² 

Since household income estimates are used to determine advance Premium Tax Credits, it looks like low-income and moderate-income taxpayers who self-insure may have to continually reconcile health insurance subsidies received versus health insurance subsidies warranted.

As a last note, there is an outside chance that the Premium Tax Credit may disappear altogether. The Supreme Court will rule later this year (but probably not prior to April 15) on whether it should be offered in the 36 states that didn’t set up their own health care marketplaces. If the SCOTUS decides that it shouldn’t be offered (and therefore, shouldn’t have been offered) in those 36 states, you will see a lot of amended 2014 returns and repayment of health insurance credits.⁵

Kim Bolker may be reached at kbolker@sigmarep.com or 616-942-8600.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 - irs.gov/Affordable-Care-Act/Individuals-and-Families/The-Premium-Tax-Credit [1/27/15]

2 - kiplinger.com/article/taxes/T027-C000-S004-health-law-breeds-new-tax-forms.html [10/15/14]

3 - bankrate.com/finance/taxes/premium-tax-credit.aspx [1/6/15]

4 - healthaffairs.org/blog/2015/01/27/implementing-health-reform-aca-related-tax-penalties-waived-high-court-turns-back-oklahoma-ag/ [1/27/15]

5 - forbes.com/sites/anthonynitti/2015/01/10/four-things-sure-to-destroy-your-tax-season/ [1/10/15]

How Much Health Care Reform Will We See By 2014?

Can the federal government follow through on its ambitions?

In 2014, we were supposed to see profound health care reform per the 2011 Affordable Care Act – but how much of that reform will roll out on time?

 The federal government has already conceded that it can’t enforce the employer mandate portion of the Affordable Care Act by 2014. On July 2, the Obama administration gave businesses with 50 or more employees a 1-year reprieve from having to provide affordable health insurance to full-time employees (people working 30 or more hours weekly).^1,2

So how about the state health insurance exchanges that are scheduled to be up and running by October 1? How about the planned expansion of Medicaid? Will these reforms also be delayed? The House of Representatives has scheduled a mid-July vote to attempt to do just that. Lastly, do small businesses have any enthusiasm about health care reform?³

What’s the progress on the state exchanges? The progress report isn’t good. As the Wall Street Journal noted last month, even the Government Accountability Office thinks that a “timely and smooth implementation of the exchanges by October 2013 cannot yet be determined.”⁴

Small businesses and the self-employed are supposed to be able to find affordable coverage through these online marketplaces. The small business exchange rollout has already encountered glitches. In some states, only one insurance carrier has shown interest in them; the state of Washington is simply postponing its exchange because no carrier wanted to provide small business plans statewide. In 2014, businesses will be asked to select and offer one insurance plan from the exchanges to their workers. In the initial conception, they could elect to offer employees multiple insurance options. The federal Centers for Medicare & Medicaid Services are overseeing the implementation of the individual exchanges in 33 states; 17 other states and the District of Columbia are setting up their own exchanges.⁴

Individual exchanges in 34 states will be created via the federal government – but on July 5, it quietly granted another concession. The Department of Health and Human Services relaxed a requirement for the 16 other states and the District of Columbia to verify the income and health coverage status of applicants to those individual exchanges. These 17 exchanges will only check the income eligibility of applicants at random next year, and they will wait until 2015 to check if applicants are getting employer-sponsored health benefits.⁵

The WSJ learned that states running their own exchanges had missed, on average, 44% of the interim deadlines for these projects through the end of March. Still, DHHS chief technology officer Todd Park told CNBC that the state exchanges are "on track" and will allow open enrollment beginning October 1.^4,6

Where do things stand state-by-state with the Medicaid expansion? Just 23 states and the District of Columbia have signed up for it. (You’ll recall that the Supreme Court allowed states to opt out of it when it ruled that the ACA was constitutional in 2012.) In these states and in Washington D.C., those with earnings of up to 138% of the federal poverty level may qualify for Medicaid (that works out to earnings of $15,856 for an individual and $32,499 for a family of four). The expansion of Medicaid in these states doesn’t require the federal government to recreate the wheel, but delays could happen in other ways. In Michigan, for example, state legislators have passed their own version of a Medicaid expansion requiring a 90-day federal review process, which will put Michigan weeks behind in enrolling participants in expanded Medicaid coverage.^6,7

Do employers even care about the ACA’s incentives? The ACA opens the door for employers to markedly increase the percentage of employee benefits represented by wellness incentives. Yet in a survey of 1,000+ employers conducted by Virgin HealthMiles and Workforce Magazine, just 25.8% of companies surveyed said they intended to draw on wellness provisions of the ACA to enhance employee health benefit offerings. A lack of information about such incentives may be a factor here for both employers and employees. In fact, the survey also polled almost 10,000 workers at these companies and found that while 87.2% looked at health and wellness packages when considering a job, half of the respondents said they were “not aware of, or need to know more about, health and wellness programs offered by employers.”⁸

Frankly, what’s to get excited about? An analysis from insurance consulting firm Millman says that individual premiums could grow 25-40% costlier due to the ACA with small market group premiums rising 6-12%. On the other hand, Humana estimates that by renewing individual and group health plans before 2014, a workplace with predominantly younger and healthier employees could see rates rise by 15% or less. Unsurprisingly, a number of major carriers are expected to offer early renewals.⁹

President Obama noted the possibility of “glitches and bumps” along the way to the ACA’s full implementation. They are evident now.

Kim Bolker may be reached at kbolker@sigmarep.com or 616-942-8600.  This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 - kansascity.com/2013/07/03/4328512/qa-on-impact-of-health-law-delay.html [7/3/13]

2 - money.cnn.com/2013/07/03/smallbusiness/obamacare-employer-mandate/index.html [7/3/13]

3 - abcnews.go.com/blogs/politics/2013/07/house-to-vote-next-week-to-delay-individual-mandate/ [7/11/13]

4 - online.wsj.com/article/SB10001424127887324520904578553871314315986.html [6/19/13]

5 - reuters.com/article/2013/07/08/us-usa-healthcare-obamacare-idUSBRE96700R20130708 [7/8/13]

6 - webmd.com/health-insurance/news/20130711/is-us-health-care-reform-on-track-for-2014 [7/11/13]

7 - lansingstatejournal.com/article/20130707/NEWS04/307070073/Clock-ticking-Michigan-Medicaid-expansion [7/7/13]

8 - benefitspro.com/2013/06/03/employers-ignoring-ppaca-wellness-incentives [6/3/13]

9 - benefitspro.com/2013/05/31/putting-off-ppaca-with-early-plan-renewals#.UdQRNFW13Vk.email [5/31/13]

Gold’s Big Plunge

Why did its price drop more than 13% in two days?

Suddenly, a bear market in gold. On April 12, the precious metal settled at $1,501.40 on the COMEX – diving 4.1% in a single trading day and 20.5% under its all-time closing high of $1,888.70 on August 22, 2011. Statistically, that was the end of a lengthy bull market – one marked by 12 years of annual gains.^1,2

As gold bulls discovered, the selloff was just getting started. April 15 was the worst day for gold in 30 years – prices slid 9.4% lower on the COMEX to a close of $1,360.60.³

Buyers crept back into the gold market April 16, and the yellow metal staged something of a rebound – but why did prices plummet so quickly? While the tragedy at the Boston Marathon stunned Wall Street and the nation, the key factors behind gold’s two-day retreat came from overseas.    

One influence: a sell signal from Cyprus. Late last week, reports emerged that the central bank of Cyprus was going to sell its excess gold reserves. Those reserves are scant by global standards – around 40 metric tons – but investors worried that other distressed eurozone nations might follow suit.^1,3

Another influence: China’s Q1 GDP. On April 15, its National Bureau of Statistics estimated first quarter growth at 7.7%, down from 7.9% in the fourth quarter. Economists polled by Reuters had projected China’s Q1 GDP at 8.0%. This riled Wall Street, and it was certainly unwelcome news for gold bugs as China’s appetite for gold seems to generally be quite strong. Stock and commodity investors were counting on the PRC’s growth to pick up, and instead they got one more signal of economic slowing adding to a perception of weaker global growth, implying less inflation and less demand to send gold prices higher.^3,4

Another lesson in diversification. Historically, many investors have hedged with gold – holding a little in their portfolios, but not too much. During the 2008-09 bear market in stocks, the flight to quality was strong and gold played the role of the “safe haven”. Now, stocks are strong and gold prices have suddenly sunk. Both of these downturns illustrate why many investors feel it is wise to allocate portfolio assets across different investment classes.

Kim Bolker may be reached at kbolker@sigmarep.com or 616-942-8600.  This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 - www.marketwatch.com/story/gold-prices-slip-with-weekly-declines-in-sight-2013-04-12 [4/12/13]

2 - www.cnbc.com/id/100644021 [4/16/13]

3 - www.usatoday.com/story/money/personalfinance/2013/04/15/gold-plunges-in-panic-selling/2085867/ [4/15/13]

4 - www.cnbc.com/id/100640654 [4/14/13]

What Does the Dow’s Record High Really Mean?

Does it signal anything more than bullish sentiment?

Next stop, 15,000? As the Dow Jones Industrial Average settled at a new all-time high of 14,253.77 on March 5, the psychological lift on Wall Street was undeniable – the market was finally back to where it was in 2007. Or was it?¹

For many Americans, the Dow equals the stock market, and the stock market is a direct product of the economy. It doesn’t quite work that way, of course. Right now, it is worth examining some of the factors that have driven the Dow to its series of record closes. Does the Dow’s impressive winter rally signal anything more than unbridled bullish enthusiasm?

The small picture. Investors should remember that the Dow Jones Industrial Average includes just 30 stocks – 30 closely watched stocks, to be sure, but still just 30 of roughly 2,800 companies listed on the New York Stock Exchange. The S&P 500, with its 500 components, is considered a better measure of the market. When you hear or read that “stocks advanced today” or “stocks retreated this afternoon”, the reference is to the S&P. As the Dow kept settling at all-time peaks in early March, the S&P was consistently wrapping up trading days at 5-year highs but still remained about 2% off its 2007 record close.^2,3

You could argue that the Dow is even less representative of the broad stock market than it once was. In 2007, Kraft, Citigroup and General Motors were among the blue chips; since then, they’ve been tossed out and the index has gotten a little more tech-heavy.¹

If you add up all the share prices of the 30 stocks in the Dow, you will not get a number over $14,000. The value of the Dow = 7.68 x the total share prices of all 30 Dow components. How did Dow Jones arrive at the magic multiplier of 7.68? It is a direct reflection of the Dow Divisor, which is a numerical value computed and periodically adjusted by Dow Jones Indexes. For every $1 that shares of a DJIA component rise in price, the value of the Dow rises 7.68 (the Dow Divisor, you see, is well beneath 1 – on March 7 it was 0.130216081).^4,5,6

The DJIA isn’t indexed to inflation, so hitting 14,167 in 2013 isn’t quite like hitting 14,167 in 2007. It is a price-weighted index as well (i.e., each Dow component represents a fraction of the index proportional to its price), which also makes a comparison between 2007 and 2013 a bit hazy.¹

The big picture. The Dow surpassed its old record thanks to many factors – the resurgent housing market, the Institute for Supply Management’s February purchasing managers indices showing stronger expansion in the manufacturing and service sectors, an encouraging ADP employment report, and of course earnings. Perhaps the most influential factor, however, is central bank policy. The Federal Reserve’s ongoing bond-buying has stimulated the real estate industry, the market and the overall economy, and fueled the DJIA’s ascent. The parallel, open-ended effort of the European Central Bank has diminished some of the anxiety over the future of the euro. In early March, the ECB and the Bank of England again refrained from adjusting interest rates and ECB president Mario Draghi mentioned the need for the bank to retain an “accommodative” policy mode until the eurozone economy sufficiently improves.³

In the big picture, two perceptions are moving the market higher. One is the conclusive belief that the recession is over. The other is the assumption that the Fed will keep easing for a year or more. Pair those thoughts together, and you have grounds for sustained bullish sentiment.

How high could the Dow go? Any time the Dow flirts with or reaches a new record high, bears caution that a pullback is next. Though many analysts feel stocks are fairly valued at the moment, a combination of headlines could inspire a retreat – but not necessarily a correction, or a replay of the last bear market.

While the market has soared in the first quarter, the economy grew just 0.1% in the fourth quarter by the federal government’s most recent estimate. That may have given some investors pause: the Investment Company Institute said that $1.13 billion left U.S. stock funds in the week of February 25-March 1, which either amounts to bad timing, an aberration (as it was the first outflow ICI recorded this year), profit-taking or skittishness.⁷

If the Dow hits 14,500 or 15,000, that won’t confirm that the economy has fully healed or that the current bull market will last X number of years longer. It will be good for Wall Street’s morale, however, and Main Street certainly takes note of that. Lazard Capital Markets managing director Art Hogan seemed to speak for the status quo in a recent CNBC.com article: “We’re certainly in an environment where good news is great and bad news is just okay. The market has just found the path of least resistance to the upside in the near term and it’s hard to find something to knock it off there.”⁷

Kim Bolker may be reached at 616-942-8600 and kbolker@sigmarep.com.  This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – business.time.com/2013/03/06/dow-jones-closes-at-record-high-so-what/ [3/6/13]

2 – www.nyse.com/content/faqs/1050241764950.html [3/7/13]

3 – money.cnn.com/2013/03/07/investing/stocks-markets [3/7/13]

4 – www.dailyfinance.com/2013/02/28/dow-14000-economy-meaning-djia-explainer/ [2/28/13]

5 – www.investopedia.com/terms/d/dowdivisor.asp#axzz2MtpUOJVi [3/7/13]

6 – online.wsj.com/mdc/public/page/2_3022-djiahourly.html [3/7/13]

7 – www.cnbc.com/id/100533269 [3/7/13]

The 2 Biggest Retirement Misconceptions

While the idea of retirement has changed, certain financial assumptions haven’t.

We’ve all heard about the “new retirement”, the mix of work and play that many of us assume we will have in our lives one day. We do not expect “retirement” to be all leisure. While this is becoming a cultural assumption among baby boomers, it is interesting to see that certain financial assumptions haven’t really changed with the times.

In particular, there are two financial misconceptions that baby boomers can fall prey to – assumptions that could prove financially harmful for their future.

#1) Assuming retirement will last 10-15 years. Historically, retirement has lasted about 10-15 years for most Americans. The key word here is “historically”. When Social Security was created in 1933, the average American could anticipate living to age 61. By 2005, life expectancy for the average American had increased to 78.¹

However, some of us may live much longer. The population of centenarians in the U.S. is growing rapidly – the Census Bureau estimated 71,000 of them in 2005 and projects 114,000 for 2010 and 241,000 in 2020. It also believes that 7.3 million Americans will be 85 or older in 2020, up from 5.1 million 15 years earlier.²

If you’re reading this article, chances are you might be wealthy or at least “affluent”. And if you are, you likely have good health insurance and access to excellent health care. You may be poised to live longer because of these two factors. Given the landmark health care reforms of the Obama administration, we could see another boost in overall American longevity in the generation ahead.

Here’s the bottom line: every year, the possibility is increasing that your retirement could last 20 or 30 years … or longer. So assuming you’ll only need 10 or 15 years worth of retirement money could be a big mistake.

In 2010, the AmericanAcademy of Actuaries says that the average 65-year-old American male can expect to live to 84½, with a 30% chance of living past 90. The average 65-year-old American female has an average life expectancy of 87, with a 40% chance of living past 90.³

Most people don’t realize how much retirement money they may need. There is a relationship between Misconception #1 and Misconception #2 …

#2) Assuming too little risk. Our appetite for risk declines as we get older, and rightfully so. Yet there may be a danger in becoming too risk-averse.

Holding onto your retirement money is certainly important; so is your retirement income and quality of life. There are three financial issues that can affect your quality of life and/or income over time: taxes, health care costs and inflation.

Will the minimal inflation we’ve seen at the start of the 2010s continue for years to come? Don’t count on it. Over the last few decades, we have had moderate inflation (and sometimes worse, think 1980). What happens is that over time, even 3-4% inflation gradually saps your purchasing power. Your dollar buys less and less.

Here’s a hypothetical challenge for you: for the rest of this year, you have to live on the income you earned in 1999. Could you manage that?

This is an extreme example, but that’s what can happen if your income doesn’t keep up with inflation – essentially, you end up living on yesterday’s money.

Taxes will likely be higher in the coming decade. So tax reduction and tax-advantaged investing have taken on even more importance whether you are 20, 40 or 60. Health care costs are climbing – we need to be prepared financially for the cost of acute, chronic and long-term care.

As you retire, you may assume that an extremely conservative approach to investing is mandatory. But given how long we may live - and how long retirement may last - growth investing is extremely important.

No one wants the “Rip Van Winkle” experience in retirement. No one should “wake up” 20 years from now only to find that the comfort of yesterday is gone. Retirees who retreat from growth investing may risk having this experience.

How are you envisioning retirement right now? Has your vision of retirement changed? Is retiring becoming more and more of a priority? Are you retired and looking to improve your finances? Regardless of where you’re at, it is vital to avoid the common misconceptions and proceed with clarity.

Kim Bolker is a Representative with Sigma Financial Corporation and may be reached at kbolker@sigmarep.com or 616-942-8600.  This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of the presenting Representative or the Representative’s Broker/Dealer. This information should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.. www.petermontoya.com, www.montoyaregistry.com, www.marketinglibrary.net

Citations

1 – nytimes.com/2008/04/27/weekinreview/27sack.html?pagewanted=print [4/27/08]

2 – usatoday.com/tech/science/2005-10-23-aging-centenarians_x.htm [10/23/05]

3 – usatoday.com/money/perfi/retirement/2010-04-30-401k28_CV_N.htm [5/3/10]

WHY 2013 MAY BE A VERY GOOD YEAR

If the fiscal cliff is averted, stocks may have all kinds of reasons to rise.

What if the future is more bullish than the bears assume? With 2013 approaching, stock market volatility seems to have increased. Equities rise on optimistic remarks about a fiscal cliff solution, then fall when another voice expresses pessimism, and vice versa.          

In addition to this constant seesawing, the market is contending with anxieties about Europe, with the eurozone now officially in another recession, and the strong possibility of higher taxes on capital gains and dividends in 2013 plus surtaxes on varieties of net investment income.¹ 

Even so, 2013 may turn out to be a good year for stocks. Our economy looks to be healing, and that may give investors around the world more optimism.   

A housing comeback appears evident. Our economy won’t fully recover from the downturn until the housing market does. We have strong indications that this is happening. The October report on existing home sales from the National Association of Realtors showed a 10.9% annual improvement in the sales pace, with the median sale price rising 11.1% in a year to $178,600. (The median sale price increased in October for an eighth straight month.) The Census Bureau noted a 17.2% annual rise in new home sales in October. Lastly, the Conference Board’s November consumer confidence poll found that 6.9% of respondents planned to buy a home in the next six months. In November 2010, less than 4% did.^2,3,4    

QE3 is open-ended. The Federal Reserve will keep buying mortgage-linked securities for as long as it sees fit, and the Wall Street Journal has reported that the Fed will likely broaden the effort to include the purchase of Treasuries in 2013 (compensating for the absence of Operation Twist next year). So cheap money should be around in 2013 and beyond thanks to the Fed’s bond-buying efforts and its dedication to maintaining historically low interest rates.⁵    

Earnings could improve. This last earnings season was as disappointing as analysts believed it would be, but we could see gradual improvement across upcoming quarters, assuming Congress does something significant about the fiscal cliff. Citigroup sees earnings growth of 5% next year even with minor fiscal tightening.⁶   

Durable goods orders didn’t drop last month. They were flat in October (minus transportation orders). This implies that if some companies cut back on spending heading toward the fiscal cliff, others increased or resolutely maintained theirs. Business investment increased in October in key categories: 0.9% for computers (the first rise in demand in five months), 2.9% for machinery and 4.1% for electrical gear.⁷ 

Consumer confidence may be translating into personal spending. This month, the Conference Board’s consumer confidence index reached a mark of 73.7; the highest level since February 2008. Chain-store sales were up 3.3% during Thanksgiving week from the week before, and up 4% from last Thanksgiving week according to the International Council of Shopping Centers.⁷ 

If we get a fix for the fiscal cliff, 2013 could be promising. There is a real sense that the U.S. economy is headed for better times, along with the market. Morgan Stanley had projected the S&P 500 ending 2012 at 1,167; that certainly seems doubtful. It now forecasts the index finishing 2013 at 1,434. Other year-end 2013 projections for the S&P are even more bullish: Deutsche Bank is seeing a year-end finish of 1,500, Bank of America Merrill Lynch sees the S&P reaching 1,600, and Piper Jaffray thinks it can make it all the way up to 1,700.⁸ 

There are economists who think 2013 could be a key transitional year, a step toward a more robust economy at mid-decade. If solid economic indicators inspire companies and consumers to spend and invest more, next year might surprise even the most ardent stock market bears.

Kim Bolker may be reached at kbolker@sigmarep.com or 616-942-8600.  This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.   

Citations.

1 - www.cbsnews.com/8301-505123_162-57550532/return-of-europe-recession-is-bad-news-for-u.s/ [11/15/12]

2 - investorplace.com/2012/11/existing-home-sales-climb-in-october/ [11/19/12]

3 -www.latimes.com/business/la-fi-mo-new-home-sales-20121128,0,3039964.story [11/28/12]

4 – blogs.wsj.com/economics/2012/11/27/price-rise-shows-a-better-balanced-u-s-housing-market/ [11/27/12]

5 – articles.marketwatch.com/2012-11-28/economy/35404923_1_treasurys-operation-twist-program-long-term-rates [11/28/12]

6 - www.cnbc.com/id/49922204/2013_Earnings_Outlook_Now_in_Congress_Hands [11/21/12]

7 - news.investors.com/economy/112712-634800-fiscal-cliff-fears-dont-sink-durable-goods-confidence.htm [11/27/12]

8 - www.cnbc.com/id/49981729 [11/27/12]

Financial Considerations for 2013

It isn’t too early to think about next year.

We are now in plain view of the “fiscal cliff”. After the election, Congress may or may not end up keeping income and estate tax rates at their recent levels. Next year may bring some notable financial developments, and it isn’t too soon for households to think about them. 

You may want to prioritize tax reduction. If the Bush-era tax cuts sunset, everyone will see higher taxes. The federal income tax brackets (10%, 15%, 25%, 28%, 33%, 35%) that we have known for the last nine years would be replaced by five higher ones (15%, 28%, 31%, 36%, 39.6%) come 2013.¹ 

High earners may want to watch their incomes. If your earned income for 2013 tops $200,000 - or exceeds $250,000, in the case of a couple – you may face two Medicare surtaxes. While the Medicare payroll tax on earned incomes above these levels is set to rise to 2.35% from the current 1.45%, the second surtax may prove to be the real annoyance: there is scheduled to be a 3.8% charge on net investment income for individuals and couples whose modified adjusted gross incomes surpass these levels.^1,2 

Some fine points about this second surtax must be mentioned. It would actually be levied on the lesser of two amounts – either your net investment income or excess MAGI above the $200,000/$250,000 levels. Most investment income derived from material participation in a business activity would be exempt from the 3.8% surtax, along with tax-exempt interest income, tax-exempt gains realized from selling your home, retirement plan distributions and income that would already be subject to self-employed Social Security tax.² 

The bottom line is that a bonus, an IRA distribution, or a sizable capital gain may push your earned income above these thresholds – and it will be wise to consider the impact that would have. 

You may have less take-home pay next year. Social Security taxes for paycheck employees are slated to return to the 6.2% level in 2013. They’ve been at 4.2% since the start of 2011. If you earn $75,000 during 2013, you will take home about $1,500 less of it than you would have in 2012. If you earn $50,000, we’re talking $1,000 less.³ 

Any 2013 Social Security COLA may be minor. In 2012, the cost of living adjustment to Social Security benefits was 3.6%. Before that, Social Security recipients went three years without a COLA. As inflation is mild, whatever COLA is announced this fall in tandem with Medicare premium changes may not amount to much.¹ 

Next year, medical expense deductions may shrink. If you are thinking about delaying a procedure or surgery until 2013, remember that the itemized deduction threshold for unreimbursed medical expenses is set to increase from 7.5% to 10% of adjusted gross income in 2013. Even if that happens, however, the threshold will remain at 7.5% through 2016 for taxpayers age 65 and older.¹ 

You may be able to find a better Medicare Advantage plan for 2013. The Affordable Care Act has altered the landscape for these plans (and their prescription drug coverage). Using Medicare’s Plan Finder (click on the “Find health & drug plans” link at Medicare.gov), you may discover similar or better coverage at lower premiums. The enrollment period for 2013 coverage runs from October 15 to December 7.¹ 

Those without work may find a safety net gone. Extended jobless benefits may disappear for the long-term unemployed at the start of 2013. Will Congress extend them once again? Possibly – but that isn’t a given. 

The estate & gift tax exemptions may shrink significantly. The (unified) lifetime federal gift and estate tax exemption is currently set at $5.12 million – and it will drop to $1 million in 2013 if Congress stands pat. Federal gift tax and estate tax rates are also slated to max out at 55% in 2013, as opposed to 35% in 2012. Right now, an unused portion of a $5.12 million lifetime exemption is portable to a surviving spouse; in 2013, that portability is supposed to disappear.⁴ 

Many analysts and economists think that Congress will eventually abide by President Obama’s wishes and take things back to 2009 instead of 2001 – that is, a $3.5 million estate tax exemption, a $1 million lifetime gift tax exemption, and a 45% maximum estate and gift tax rate.⁴  

Prepare for year-end drama ... and for 2013. The last two months of 2012 will surely bring political theatre to Capitol Hill. As it unfolds, you may want to look ahead to next year and consider the impact that these potential changes could have on your financial life.

Kim Bolker can be reached at kbolker@sigmarep.com or 616-942-8600.  This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – money.usnews.com/money/blogs/the-best-life/2012/08/29/get-ready-for-5-key-money-changes-in-2013 [8/29/12]

2 – www.cliftonlarsonallen.com/inside.aspx?id=364 [2/23/12]      

3 – money.cnn.com/2012/05/29/news/economy/payroll-tax-cut/index.htmx [5/29/12]

4 – www.smartmoney.com/taxes/income/preparing-for-taxmageddon-1337724496427/ [5/23/12]

Stocks & Presidential Elections

What does history show – and should we value it?

As an investor, you know that past performance is no guarantee of future success. Expanding that truth, history has no bearing on the future of Wall Street. 

That said, stock market historians have repeatedly analyzed market behavior in presidential election years, and what stocks do when different parties hold the reins of power in Washington. They have noticed some interesting patterns through the years which may or may not prove true for 2012. 

The Dow hasn’t done that well when the presidency has changed hands. A new research report from MFS Investment Management details the history of the blue chips in presidential election years from 1900-2008. It notes that the DJIA has on average lost 4.4% in election years in which the incumbent party in the White House loses. On the other hand, in years when the status quo was maintained, the Dow gained an average of 15.1%. Of course, much of these yearly gains and losses could also be chalked up to macroeconomic factors having nothing to do with a presidential race.¹ 

Overall, election years have been good for the blue chips. On average, the Dow has advanced 7.6% in the 28 election years since 1900. When Republicans have won a presidential election, the average annual gain of the index has been 10.3%. When Democrats have won the White House, the average annual gain has been 3.9%.¹ 

Do stocks respond if a particular party has control of Congress? Many House and Senate seats will be decided in November as well, and so MFS also looked for any history of effect on the S&P 500 when a single party had or lacked a majority in Congress from 1961-2010. 

In that period, MFS notes that when the White House and Congress were controlled by the same party, the S&P annually returned 12.1% on average. In years with a Democratic President and a Republican-controlled Congress, it returned an average of +21.3%. In years when a Republican President contended with a Democrat-controlled Congress, the annual return of the index averaged +4.5%. In years in which Congress was split – regardless of who was President – the S&P went 7.1%+ on average.¹ 

Could the Dow actually help determine who wins the White House? James Stack, president of InvesTech Research, chooses to look at this through the other end of the telescope. In his view, the performance of the Dow between Labor Day and Election Day exerts a powerful influence on who wins in November.  

Stack notes that in 25 of the 28 presidential elections held since 1900, the incumbent party in the White House either a) lost the presidency when the Dow retreated within that time frame or b) retained the White House when the Dow advanced between Labor Day and Election Day. Of course, other factors may have been considerably more influential in these elections, such as a given president’s approval rating and the unemployment rate.²   

Bulls have run in many fourth quarters of election years. As the Stock Trader’s Almanac cites, the S&P 500 advanced in the last seven months of 15 out of the 18 election years from 1952-2008.³    

How much weight does history ultimately hold? Perhaps not much. It is intriguing, and some analysts would instruct you to pay more attention to it rather than less. Historical “norms” are easily upended, however. Take 2008, the election year that brought us a bear market disaster. The year 2000 also brought an S&P 500 loss. While a presidential election undoubtedly affects Wall Street every four years, it is just one of many factors in determining a year’s market performance.¹

Kim Bolker may be reached at kbolker@sigmarep.com or 616-942-8600.  This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – https://www.mfs.com/wps/FileServerServlet?articleId=templatedata/internet/file/data/sales_tools/mfse_elect_sfl&servletCommand=default [9/12]

2 – www.usatoday.com/money/markets/story/2012/09/18/will-dows-gyrations-determine-race-for-white-house/57797628/1 [9/18/12]

3 – www.usatoday.com/money/perfi/columnist/krantz/story/2011-12-11/stocks-during-presidential-election-years/51770758/1 [12/9/11]

The financial impact of the Affordable Care Act

A look at the ripples from the Supreme Court decision.  

President Obama’s health care law has held up in the Supreme Court. So what impact might this have on the stock market, businesses, and investors in the coming months? 

How will Wall Street take this? After the June 28 ruling, stocks of key managed care companies fell while hospital stocks and Medicaid-related stocks rallied. Was this a reaction confined to a market day, or an indicator? Opinions differ.    

In the view of Leerink Swann health care analyst Jason Gurda, the high court ruling was “largely a neutral” financially and “what the market has mostly expected for the last two years.” Barry Knapp, head of equity strategy at Barclays Capital, called the Supreme Court’s decision “a pretty clear negative” that would weigh on business confidence and therefore the markets. Charles Boorady, a top health-care analyst for Credit Suisse, saw an upside: “As a country, we’re going to spend about $2 trillion more on health care with this law and that’s all money coming into [that sector], which will ultimately be good for the managed health care stocks.”^1,2  

Right now, the market has plenty of things on its mind (European debt issues, job creation, China’s economic health, and our November elections) and the impact of this ruling might fall far down the list.   

How much more tax will we pay? In the Supreme Court’s majority opinion, Chief Justice John G. Roberts, Jr. portrayed the Affordable Care Act’s individual insurance mandate as a tax. This was a key argument for the constitutionality of the reforms.³ 

The greatest financial impact from the Affordable Care Act may be felt in tax terms. Here are some related taxes/penalties poised to arrive in 2013, 2014 and beyond that could affect solopreneurs, businesses and the wealthy. 

*Medicare surtaxes in 2013. There are actually two such taxes. Individuals earning more than $200,000 a year and married couples earning more than $250,000 would pay a 3.8% “Medicare contribution tax” on all or part of their net investment income. Medicare taxes on salary and self-employment would rise 0.9% for such taxpayers.⁴     

*Penalties for individual non-compliance. The typical American who goes without health insurance coverage in 2014 will have to pay a penalty - $95 or 1% of annual income, whichever is greater. In 2015, the penalty will be $325 or 2% of annual income. The dollar amounts of these penalties are tripled for uninsured families.³ 

*Penalties for business non-compliance. In 2014, a business with 50 or more FTEs must start providing health coverage or face fines once an employee turns to the government for a health care tax credit or a subsidy on the exchanges. The minimum fine will be $40,000. All this may drive larger companies to shop for cheaper health coverage on the state exchanges. Yet some firms may run the numbers, consider the penalties and find it more cost-effective to drop their health plans and direct employees (and early retirees) to buy insurance individually.⁵              

*A major excise tax looms for “Cadillac” plans. In 2018, active health plans of large employers (self-insured or not) will face a 40% excise tax if plan costs exceed $10,200 for individual coverage and $27,500 for family coverage.⁶            

How surprised are business owners? Some quarters of the small business community were shocked by the Supreme Court’s decision. The National Federation of Independent Businesses (NFIB), which lobbied against the reforms for two years, will now seek to mount legal challenges to the ACA.⁷ 

As Shawn Cochran of website marketing firm Branches PSP told Fox Business, the rule that requires companies with more than 50 FTEs to provide health insurance “will be a huge factor in who and how we hire –  whether we bring on full-time employees or individual contractors. This directly affects the business decisions we make and the way companies will move forward.” Jim Amos, CEO of frozen yogurt chain Tasti D-Lite, thinks the ACA will slow franchise growth. “It’s going to force franchisees to shift workers to part-time to avoid the 50-employee threshold,” he told CNBC. “It will keep new owners and new openings on the sideline.” John Arensmeyer, CEO of the Small Business Majority, saw a win all around: “The law will significantly rein in costs while providing more health coverage options for entrepreneurs.”^7,8    

While the financial impact of the ACA may be subtler than that of the EU debt crisis or the potential end of the Bush-era tax cuts, it could prove considerable indeed.  

Kim Bolker may be reached at kbolker@sigmarep.com or 616-942-8600  

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or a recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – www.nytimes.com/2012/06/29/business/insurance-stocks-flag-hospital-shares-gain.html [6/28/12]

2 – www.cnbc.com/id/47994090 [6/28/12]

3 - money.cnn.com/2012/06/28/pf/taxes/health_reform_new_taxes/index.htm [6/28/12]

4 - www.smartmoney.com/taxes/income/what-obamacare-may-mean-for-taxes-1335896160486/ [6/28/12]

5 – money.cnn.com/2012/06/28/smallbusiness/supreme-court-health-reform/index.htm [6/28/12]

6 - www.foxbusiness.com/personal-finance/2012/06/28/health-reform-is-constitutional-here-are-tax-implications/ [6/28/12]

7 - smallbusiness.foxbusiness.com/legal-hr/2012/06/28/obamacare-upheld-small-business-community-divided/ [6/28/12]

8 - www.cnbc.com/id/48000806 [6/28/12]

Why don't you have disability income insurance?

If you can’t work and pay your bills, how are you going to cope? Let’s say an injury or illness prevents you from doing your job. How do you deal with the lost income?  Disability income insurance provides an answer. Few of us opt for such coverage, even though it may help us maintain our income (and quality of life) in a crisis. 

A case in point: the non-profit Consumer Federation of America just polled 1,200 private-sector U.S. workers and found that two-thirds of them had no such coverage.¹ 

Mention that to most employees, and they may just shrug. Who cares, who wants to buy more insurance, especially coverage you don’t think you’ll need? 

The skepticism is understandable, because we never believe we will be disabled. We don’t dare think about it. Additionally, few of us comprehend the varieties of “disability” that we could end up experiencing. 

The non-profit Council of Disability Awareness notes that 90% of disability claims in the U.S. are unrelated to workplace injury. Rather, they are filed for acute or chronic illnesses or health conditions. Musculoskeletal disorders (such as arthritis, spine and joint disorders, fibromytis and back pain) represent the largest percentage of disability claims, more than any other condition.^1,2

 Do you think you don’t need disability coverage? Think again. It may shock you how little of your wages you can replace. You can only get workers compensation if your injury or illness is job-related – but less than 5% of disabling illnesses or injuries are. Social Security disability benefits typically provide about $1,100 per month – not exactly the income you want. Additionally, it might take a year or more for you to get your first check. In 2009 (the midst of the Great Recession), the SSA denied 65% of initial SSDI claim applications.^1,3,4

 This is why disability income insurance can be so useful. Some of these policies allow payments to start just a week after an employee stops working, and many of them will provide coverage in the neighborhood of 60% of a worker’s salary.¹ 

What are your chances of becoming disabled during your working years? As a 2011 Social Security Administration Fact Sheet notes, just over 25% of today’s 20-year-olds are projected to become disabled before they retire. More than 5% of U.S. wage earners – 8.3 million people – were getting SSDI in 2011.⁴ 

The Society of Actuaries finds that once someone is disabled for 90 days, the average length of disability is two years. The CDA reports that the average long-term disability claim has a duration of 31.2 months.^1,4 

If your income drops, your stress level could soar. Do you know someone who has had to quit their job or walk away from their profession due to a disability? Then you’ve seen the financial stress that can result.  

Even if you don’t know someone facing such financial pressure, you have probably read stories that touched your heart, stories of economic hardship that can be traced back to a disability. A hard-working man or woman loses a home to foreclosure; a couple separates or divorces under economically trying circumstances; a single parent with children has to accept charity from a food bank or becomes homeless. In too many of these stories, a sudden disability is an underlying cause. 

If you die, your income stops and so do your expenses. If you are disabled and can’t work, your income stops ... but your expenses keep piling up. In fact, with the cost of medical treatment, your expenses may balloon. 

It’s time to start thinking about disability insurance. We’d all like to believe that we’ll never be disabled. But the reality is ... it could happen to you. If it does, how will your family manage? Are you prepared?

 May is Disability Income Insurance Awareness Month – a good time to make people aware of this coverage. If your employer doesn’t offer or provide you with disability income insurance, take some time to look at some of the options available. You don’t always know what the future holds; if you become disabled, this insurance may give you added economic stability. 

Kim Bolker may be reached at 616-942-8600 or kbolker@sigmarep.com

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or a recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 - bucks.blogs.nytimes.com/2012/05/01/most-workers-lack-disability-insurance-survey-finds/ [5/1/12]

2 - www.disabilitycanhappen.org/chances_disability/causes.asp [5/2/12]

3 - www.nytimes.com/2010/02/06/your-money/life-and-disability-insurance/06money.html?_r=1 [2/6/10]

4 - www.disabilitycanhappen.org/chances_disability/disability_stats.asp [5/2/12]

SELL IN MAY ... GO AWAY?

 Does the old stock market cliché have any credibility in 2012? 

An old stock market dictum says that spring is for profit-taking, or at least a time to reduce your exposure to equities. 

In the classic market psychology, you “sell in May and go away” with the belief that stock prices will plateau or retreat in spring and summer, and then you return to stocks in the fall, taking advantage of bargains and factors that will encourage a hot fourth quarter.

In the last several years, we have seen all kinds of stock market behavior, some of it extraordinary. So is there any credence to this approach now? 

The argument for “going away”. Over the last 12 months, investors who held to this belief made out pretty well. From May 1-November 1, 2011, the Dow lost 6.7%. From November 2011 through April 27, 2012, it gained 10.7%.^1,2 

If we open a historical window – specifically, The Stock Trader’s Almanac – back to 1926, we see the S&P 500 rising 4.3% on average during May-October and gaining an average of 7.1% from November-April.³ 

Unsurprisingly, STA editor-in-chief Jeff Hirsch is an advocate of the “sell in May” approach. So is Sam Stovall, who is of course the chief equity strategist at S&P Capital IQ. As Stovall just noted to Forbes, since 1945 the S&P 500 has gained just 1.2% during the average May-October run yet advanced 6.9% during the average November-April period.^1,3   

While these numbers are pretty compelling, you know what they say about statistics. 

Is the argument principally flawed? If you do sell in May, where do you put your money after dumping those stocks? The strategy assumes you know of a better place – an alternative to equities offering greater yield and less risk.  

Larry Swedroe, director of research for Buckingham Asset Management, recently told CBS MoneyWatch that the “sell in May” approach amounted to “pure randomness”. He made his claim by running numbers in calendar years from 1950-2007 with the hypothesis of reinvesting money pulled out of equities into 30-year Treasuries during the assumed 6-month market lull. According to his research, the “buy and hold” crowd would have outperformed the “sell in May” crowd in the time frames 1950-2007, 1980-2007 and 1990-2007, with the “sell in May” adherents triumphing in the time frames of 1960-2007, 1970-2007 and 2000-2007.^3,4    

The case for staying in the market. Even if the performance numbers mentioned in the fourth, fifth and sixth paragraphs of this article were absolutely predictable annually, what would the compelling argument be for ditching stocks? Gains would still occur in spring and summer; they would just be lesser gains. 

Let’s go from hypothesis to reality, specifically what is occurring right now. An investor wanting a divorce from risk for the next six months could decide to bail from stocks and put the assets into short-term Treasuries and money market accounts. Would it be worth it? Maybe not. According to Bankrate.com, 6-month Treasuries were yielding 0.14% as of April 27 and money market accounts were yielding 0.46%. Throw in brokerage charges and taxes you might incur from selling, and getting in and out of equities may look less attractive.¹ 

Once you’re out, when do you get back in? What if mid-October brings a rally? Do you jump in and buy? What if the bears show up at the start of November? How long do you wait for what might be the market low? 

Moreover ... who’s to say that U.S. economic indicators (or even global ones) might be better than expected this summer? What if the EU arranges a manageable fix for Spain’s debt dilemma? What if the real estate market shows signs of heating up in the coming quarters? What if the Fed opts for more easing?

 If the “sell in May” strategy sounds more like market timing to you than anything else, it does have some history supporting it – history worth considering. The fact remains, however, that history is no barometer of future stock market performance. 

Kim Bolker may be reached at kbolker@sigmarep.com or 616-942-8600.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or a recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 - www.forbes.com/sites/investor/2012/04/27/stay-in-stocks-or-sell-in-may/ [4/27/12]

2 - money.cnn.com/data/markets/dow/ [4/27/12]

3 - www.cbsnews.com/8301-32778_162-57423130/why-sell-in-may-doesnt-work-for-investors/ [4/27/12]

4 - montoyaregistry.com/Financial-Market.aspx?financial-market=common-financial-mistakes-and-how-to-avoid-them&category=29 [4/27/12]

Could gas prices harm the recovery?

What kind of drag are they exerting? Will they soon fall, or not? 

By March 16, retail gas prices were up 16.94% YTD. This major climb is leading some economists to wonder if the leap in gas prices is powerful enough to stall our economic momentum.¹

 In February, energy costs rose 6% for the American consumer. Gasoline prices accounted for 100% of that gain. In fact, gasoline prices were behind 80% of the overall 0.4% rise in the Consumer Price Index for February, meaning that last month brought the most consumer inflation of any month since April.^1,2 

We’ve seen $4 gas. What if $5 gas becomes common? If that happens during the summer driving season, the Federal Reserve may find itself weighing which move to make. Higher energy costs could hurt the broad economy, and if that happened, you would almost certainly hear clamor for some kind of stimulus. On the other hand, if Wall Street and Main Street both fret that inflation is rising, the Fed would hardly want to ease.   

How does these price hikes affect consumer psychology? One possible consequence of all this is that Main Street may be projecting greater inflationary pressures than really exist. In the University of Michigan’s mid-March consumer sentiment survey, the consensus one-year inflation expectation among respondents was 4.0%. Yet in February, actual yearly consumer inflation was just 2.9%.^1,3 

Consumer expectations can have powerful influence. If consumers think inflation is rising, they may be inclined to ask employers for raises. The stores where they shop may try to take advantage of their perception by subtly raising prices. The assumption of inflation can actually have the power to foster inflation.

 The Fed thinks the increase is temporary. If prices get too high, a point will come when demand for gas will lessen – and correspondingly, prices could decrease. On March 16, a gallon of regular unleaded was averaging $3.83 nationally – prices had risen $.08 in a week and about 9% in a month. Still, the Federal Reserve sees this wave of $4 retail gas as another short-term price fluctuation, ultimately unsustainable when drivers throw in the towel regardless of lingering worries over Iran’s budding nuclear program and oil supply concerns.^4,5 

Kim Bolker may be reached at 616-942-8600 or kbolker@sigmarep.com  This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or a recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 - money.msn.com/market-news/post.aspx?post=7b65a645-53f2-4b26-8b37-7c9c88448197 [3/16/12]

2 - www.usatoday.com/money/economy/story/2012-03-16/February-inflation-consumer-price-index/53561880/1 [3/16/12]

3 – www.forexlive.com/blog/2012/03/16/univ-of-mich-prelim-mar-consumer-sentiment-74-3-vs-75-3-feb/ [3/16/12]

4 – www.latimes.com/business/money/la-fi-mo-gas-inflation-20120316,0,528931.story [3/16/12]

5 – www.cnbc.com/id/46760636 [3/16/12]

Ways to put a Refund to work - what could that money could do for you?

Is a tax refund coming your way? If you have already received your refund for 2012 or are about to receive it, you might want to think about the destiny of that money. Here are some possibilities. 

• Start (or add to) an emergency fund. Many people don’t have a dedicated rainy day fund, only the presumption that they might have enough cash in case of a financial tight spot.
• Invest in yourself. You could put the money toward education, career training, personal improvement, or some sort of personal experience with the potential to enhance your life.
• Use it for a down payment on a car or truck or real property. Real property represents the better financial choice, but updating your vehicle may have merit - cars do wear out, and while a truck also ages, it can help you make money.
• Put it into an IRA or workplace retirement account. If you haven’t maxed out your IRA this year or have a chance to get an employer match, why not?
• Help your child open up a Roth IRA. Has your under-18 son or daughter worked and earned money this year? He or she can open a Roth IRA. Your child’s contribution limit is $5,000 or the amount of his or her earned income for 2012 (whichever is lower). You can actually make this Roth IRA contribution with your own money if your child has spent his or her earnings.²  
• Buy some warehouse memberships. If you have a large family or own a small service business, why not sign up to save regularly?
• Pay down debt. Always a smart choice.
• Establish a financial strategy. Some financial advisors work on a fee-only basis. They can perform a review of your current financial situation and give you pointers for the future for roughly $1,000 with no further obligation.¹  
• Pay for that trip in advance. Instead of racking up a bigger credit card bill, consider pre-paying some costs or taking an all-inclusive trip (some are not as pricey as you might think).
• Get your home ready for the market. A four-figure refund may give you the cash to spruce up the yard and/or exterior of your residence. Or, it could help you pay a professional who can assist you with staging it.
• Improve your home with energy-saving appliances. Or windows, or weatherstripping, or solar panels – just to name a few options.
• Create your own food bank. What if a hurricane or an earthquake hits? Where would your food and water come from? Worth thinking about.
• Write a proper will. Your refund could pay the attorney fee, and the will you create might end up more ironclad.
• See a doctor, optometrist, dentist or physical therapist. If you haven’t been able to see these professionals due to your insurance situation or your personal cash flow, the refund might provide a way.
• Give yourself a de facto raise. Adjust your withholding to boost your take-home pay.
• Pick up some more insurance coverage for cheap. The typical flood insurance policy in a low-to-medium risk area costs less than $1,000 (and sometimes less than $500). A $1 million personal liability umbrella policy can usually be bought for $400 or less.²
• Pay it forward. Your refund could turn into a charitable contribution (deductible on your 2012 federal tax return if you itemize deductions).

 In the past two years, federal tax refunds have averaged about $3,000. That’s a nice chunk of change – and it could be used to bring some positive change to your financial life and the lives of others.²

Kim Bolker may be reached at 616-942-8600 or kbolker@sigmarep.com  This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or a recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 www.dailyfinance.com/2012/03/23/tax-refund-surprising-smart-ideas/#photo-1 [3/23/12]

2 www.kiplinger.com/slideshow/10usesforyourrefund/1.ht

Insure Your Love

I have this poster hanging in my office.  A constant reminder of how important life insurance is.  Because he loved me,  

He did the dishes

Rubbed my feet

Surprised me with tulips

Took me to musicals even though he didn’t like them

Carried my bags while I did the shopping

Held my hand.

He died of cancer four years ago.

Because he loved me,

I can stay in our home.

I can be here for our children.

I can afford to pay for their college education.

I can worry about the other things in my life besides money.

He still loves me.  And he still shows it.

Life Insurance: Affordability

If there is one thing I have heard over and over again, it’s “I know I need life insurance, but it’s not something I can afford right now.”   I heard on the radio the other day that the average family spends $37 per week eating out for lunch.  That’s nearly $2000 a year!  And that doesn’t even include the dinners out, happy hour, or the daily coffee run.  

Life insurance is love insurance.  You know you need it and I’m assuming you can live with the idea of packing a lunch once a week if it means taking care of your family once you’re gone.  And if your budget is truly that tight, imagine what financial hardship your family would be in if they didn’t have you and your income anymore.  

Make 2012 the year you take care of your life insurance.

Life Insurance: What types?

There’s basically two types of life insurance: term and permanent.  I look at them like renting vs. owning.  Term insurance is designed to meet temporary needs.  It covers for a specific amount of time, and only provides the benefit if you die within the term.  It is the most affordable type of insurance and gives the most benefit for your dollar.  It’s like renting because you aren’t building any type of cash value with these policies.  They cover a large benefit for an inexpensive amount, which is why they are so attractive to young families. 

Permanent insurance is designed to provide lifetime coverage.  It’s like owning because you can build cash value with most of these policies and as long as you pay your premium, they will provide a benefit to your family.  The cash component acts like a savings: you can borrow or withdraw money from these policies in the future. 

 Which is better?  It kind of depends on your situation but typically a combination of both works well.  You should meet with a professional, such as myself, to design a plan that covers your family best within your budget.

Life Insurance: How much?

I’m often asked how much life insurance does someone really need?  It kind of depends on what their situation is, whether they are retired and just looking a final expense plan; or they are a young family.  Here’s the main factors I use: 

1. Immediate expenses (such as burial expenses, estate/probate costs, unpaid medical bills)
2. Outstanding debts (mortgage payments, credit card debts, car loans)
3. Future goals (such as college for kids, private school, spouse’s retirement)
4. Income replacement (how many years you want your income supplemented)

Depending on how you answer those questions, your insurance need could be between $100,000 and $1,000,000.  That’s why it is beneficial to sit down with an insurance planner, such as myself, to determine the best way to cover these items within your budget.  

Trust me.  $250,000 may sound like a lot of money, but it goes really fast, especially if you have young kids.

Life Insurance is Love Insurance

Life insurance isn’t really about you; it’s about those you leave behind.  And life insurance is an expression of love – you loved your family so much to make sure they were financially taken care of once you were gone.   If someone depends on you financially, you need life insurance.  Whether you a parent, business owner, married, or single.  Losing someone you are close to is always difficult.  I lost my Grandma last October, and I still miss her every day.  But your emotional difficulties don’t need to be compounded by financial difficulties. 

Life insurance provides cash to your family to help with whatever they need it for – final expenses, medical bills, groceries, rent/mortgage, etc.  

Insure your love.  Don’t live without life (insurance).

Long-term care planning - It's time to start

Some things I believe you need to know about long-term care:  You're probably not covered.  Many people mistakenly believe they are covered for long-term care, but this assistance is not typically covered by your health or long-term disability insurance. 

Government programs aren't designed to pay for all your long-term care needs.   Medicare only pays for skilled care, while Medicaid only covers the very poor – those whose assets are at or below state-required levels.  These programs often don't cover care provided in your own home. 

Long-term care doesn't mean nursing home care.   In fact, the majority of people who need long-term care remain in their own home or in their community.   Most long-term care insurance policies will cover people in all care settings including the home.  That's a significant benefit.

  Your age and health make a big difference in what protection costs.  Many people put off looking into long-term care insurance protection.  Waiting to plan can be a mistake because the cost of insurance is based on your age, increasing as you get older.   Your health is also a most important factor.  Waiting to plan can be a costly mistake because a change in your health can make you ineligible for this protection (no matter how much you are willing to pay).

Make Long-Term Care Awareness Month the time you start planning.

There is no cost or obligation to find out how much long-term care insurance protection costs. Why not find out now.  It's an important first-step to take.  Call me today, at 616-942-8600.

You’re NOT too young to plan NOW for long-term care

November is Long-Term Care Awareness Month.  Even the U.S. Congress has urged "the people of the United States to recognize (this) as an opportunity to learn more about the potential risks and costs … and the options available."  Smart reasons to think about long-term care as part of your overall financial plan.  You protect against other risks like a car accident or house fire.  A need for long-term care is a risk to your savings and to your retirement.  It will impact your family and loved ones.   Just as it is smart to plan ahead for retirement, it's smart to plan now for long-term care.  Here are some things you should know: 

      - Buy before age 65; avoid the high cost of waiting.       - At younger ages you can lock in good health special savings.       - Discounts can help significantly reduce the cost.       The first step is in your hands.  Getting the information you need to make an informed decision is always a smart move.   Waiting is never advantageous.  I encourage you to take this first step.  Call me at 616-942-8600.  There's no obligation, of course.  Make Long-Term Care Awareness Month the time you start planning.