Timely Topics - January 26, 2012 |
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1. Generating Portfolio Cash Flow in a Low Interest Rate EnvironmentInterest rates are so low for all but the riskiest investments that those needing to withdraw from their portfolios, usually those in retirement, face a major challenge. At such low yields, only the very affluent (having a very large portfolio) or high risk-takers have portfolios that generate enough cash flow (typically from interest and dividends) to satisfy their cash withdrawal needs. When faced with the options of 1) dramatically increasing the higher income generating allocation to bonds, 2) using much higher risk bonds and other investments having higher yields, or 3) enduring lower cash yield then needed, we elect the third option. However, we add an important wrinkle. We set aside reserves in cash, money market funds, and short term bond funds that in combination with investment income will satisfy cash withdrawal needs for a period of time, usually 3-5 years. When markets decline, reserves supply the cash needed for on-going living expenses without requiring sales of assets, generally providing the time needed for markets to recover. Reserves also allow the portfolio to maintain its long-term strategic allocation, and especially its allocation to equities. This, in turn, allows the portfolio to maintain the risk profile appropriate for each client and also requisite for maintenance of discipline during down markets. Please contact us if you want a refresher or further information on our approach. 2. 2011 IRA Contribution Deadline is 4/16/12Here's our annual reminder that IRA contributions should be of interest to all taxpayers who have earned income at least equal to the limits. Please note income from investments, Social Security, and pensions does not constitute earned income. The allowable contribution to an IRA attributable to 2011 is $5,000 for anyone under 50 years of age and $6,000 for those over 50 as of the last day of the calendar year. Accordingly, for a married couple the 2011 contribution limits total $10,000 - $12,000, depending on age. These single and married limits are high enough to make a considerable difference over time in the rate of after-tax wealth accumulation for all but the wealthiest U.S. taxpayers (i.e., not a big enough impact for the really wealthy). There are complicated rules limiting Roth IRA contributions and the deductibility (but not the allowability) of traditional IRA contributions. Nonetheless, even non-deductible contributions of $10,000-$12,000 to traditional IRA's repeated year after year can be valuable for enhanced wealth accumulation, especially for younger people, because of the long-term tax deferral respecting earnings attributable to the contributions. It is also important to note that a non-working spouse may qualify for a deductible IRA contribution depending on the other spouse's company-sponsored retirement plan participation status and the level of family income. Your tax preparer is usually the best source for guidance regarding IRA contributions as each individual case differs. In summary, the annual IRA contribution is almost always a good strategy. However, the contribution is a perishable commodity: once the deadline passes, you are out of luck for 2011. 3. Tips for Protecting your Personal InformationEvery day you share personal information about yourself with others. It is so routine that you may not even realize you're doing it. You may write a check at the grocery store, charge tickets to a ball game, mail your tax returns, buy a gift online, call home on your cell phone, or apply for a credit card. Each transaction requires you to share personal information: your bank and credit card account numbers; your income; your Social Security number (SSN); or your name, address, and phone numbers. It's important to find out what happens to the personal information you (and your children and parents) provide to companies, marketers, and government agencies. These organizations typically use your information for completely benign purposes. Nonetheless, before you reveal any personally identifying information, find out how it will be used, how securely it is stored and whether it will be shared with others. Put passwords on your all your accounts, including your credit card account, and your bank and phone accounts. Avoid using easily available information — like your mother's maiden name, your birth date, the last four digits of your SSN, or your phone number. Shred financial documents and other printed personal information before you discard them. Use a secure browser when shopping online to guard the security of your transactions. When submitting your purchase information, look for the "lock" icon on the browser's status bar to be sure your information is secure during transmission. Never email Social Security or credit card numbers. Be aware of "phishing." Phishing is the illegal attempt to mislead consumers into providing personal or financial information via email or through fraudulent websites. See below for a specific illustration. 4. Important IRS TAX TIP 2012-08 - Don't be Scammed by Cyber CriminalsThe Internal Revenue Service receives thousands of reports each year from taxpayers who receive suspicious emails, phone calls, faxes or notices claiming to be from the IRS. Many of these scams fraudulently use the IRS name or logo as a lure to make the communication appear more authentic and enticing. The goal of these scams – known as phishing – is to trick you into revealing your personal and financial information. The scammers can then use your information – like your Social Security number, bank account or credit card numbers – to commit identity theft or steal your money. Listed below are four things the IRS wants you to know about phishing scams.
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