Friday Financial Five – March 21st, 2014
Friday, March 21, 2014
CBO advocates near term entitlement change
The Congressional Budget Office (CBO) exists in an attempt to provide non-partisan guidance to Congress to help direct budget policy. This week, Director Doug Elmendorf (http://www.c-span.org/video/?318350-2/2014-economy-summit-douglas-elmendorf) spoke of the threat presented by inaction on Social Security and healthcare programs. As we approach the year 2020, the CBO estimates entitlement spending will increase dramatically, while the rest of expenses will slightly decrease as a percentage of GDP. The choices to fix Social Security aren’t all that popular: change who can receive it and when or increase tax revenue to pay for the program as currently constituted. Elmendorf suggests that adjusting the framework now will allow individuals to plan ahead and should be a top priority.
Contribution deadlines approaching
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTFor Roth IRAs and Traditional IRAs, the date for establishing and funding them is April 15th of this year for tax year 2013. This deadline holds fast even if filing an extension. While SIMPLE IRAs need to be established by October 1st of the applicable tax year, SEP-IRAs can be established and funded by the employer’s tax filing date, including extensions.
Millionaires continue to increase
Economists continue to debate the effect income inequality has on the economy. For those concerned about the wealthier end of that equation, take comfort that the number of millionaires has increased considerably since 2009. The Spectrem Group, which has been conducting this survey for the last decade, estimates that the total number of millionaires in the U.S. is now up to 9.6 million. The mass affluent, or those with over $25 million, has also increased significantly since 2008 from 84,000 to 132,000.
Keeping an eye out for bubbles
Bonds issued by companies, or corporate debt, now has the investment world’s attention. The total amount of corporate debt has reached almost $10 trillion and is more than the mortgage backed debt of 2007, which preceded a financial crisis. This century has experience with inflated asset prices, and some investors argue against a buy-and-hold investment philosophy using bubbles as part of the logic. However, they would have to concede that recent market advances have taken place with plenty of former investors in cash due to fear created by the events of 2008. Unfortunately, there’s no hard fast rule to determine the optimal time to get back into the market once you sell out.
More advisors under scrutiny
Adding another black eye to the financial industry, the SEC recently charged a group of brokers with using terminally ill hospice patients as pawns. This scheme involved the sale of $80 million worth of variable annuities. The charges contend the brokers used fraud to obtain the dying patients’ info and use them as annuitants. The brokers then marketed these annuities to wealthy clients, generating a hefty commission in the process.
Dan Forbes is a regular contributor on financial issues. He is a CFP Board Ambassador. He leads the firm Forbes Financial Planning, Inc in Providence, RI and can be reached at [email protected] .
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