Warren Wealth Article Archive

A majority of Americans may be underprepared for their financial futures.

provided by Jacob Warren
content provided by Peter Montoya, Inc

Taking control of your financial future may be even more important for women than it is for men. Here’s why women need to invest and save actively.

The earnings gap. Even today, men tend to earn more than women. A fresh 2008 survey of retirement savings trends conducted by Hewitt Associates, a global human resources consulting firm, found that the working women they surveyed earned an average of $57,000 annually, compared to $84,000 for men.1 The average male employee in the study therefore had the chance to defer greater amounts of salary into a company retirement plan, while the average salary of the surveyed female employees sometimes wasn’t high enough to trigger a company match.

Time out of the workplace. Men don’t usually put their careers aside to care for young children (or family members with special needs). Traditionally, women have been the ones who have taken time out of the work force for these responsibilities.

If a woman relies on a company retirement plan to accumulate retirement savings, this time out from the workplace can amount to a financial setback. A male employee may contribute to a 401(k) plan year after year for 20 or 30 years or more, and his contribution levels may increase as his salary increases. If a woman leaves the workplace for a few years (or more), her retirement nest egg still compounds, but the steady salary deferrals to a 401(k) plan cease. When she retires, she may have less of a nest egg than her male counterpart if she just relies on the company retirement plan as her primary retirement savings vehicle.

This is a compelling reason for women to build their own investment portfolios, in addition to participating in employer-sponsored retirement plans.

Divorce may mean that a woman has to “start over” financially. Many women find that a “fair and equal” settlement is not an equitable settlement. When the husband earns much more than the wife, all kinds of decisions ride on the stability of the husband’s salary – the neighborhood the couple or family can afford, what school the kids attend, and so on. When that big salary is gone, the woman faces a reduced lifestyle, and may dip into her savings to maintain financial equilibrium.

More importantly, she may not have the earnings potential her husband has. Things can get particularly tough when the wife is a key employee at a business or professional practice her husband started years before the marriage. After a divorce, the husband may retain the business and the bulk of the business assets, regardless of the integral role the wife played in growing and running the company. Will she want to work alongside her ex-husband? Probably not. So the stable job she had is a memory, and a career change and a move may be next.

This is why divorce financial planning is so important for many women. Women need to walk away from a divorce not just with an “equal” settlement, but with an investment portfolio and a financial plan personalized for their needs and goals, so that they can (re)build wealth on their own.

Women outlive men. On average, women live five years longer than men; in fact, the Labor Department estimates that almost 90% of women will outlive their husbands and spend a portion of their retirements managing their own finances.2

A woman who retires alone may face a very long retirement: if you leave work at 62, it may last 20 years or longer, with only about 30% of your income coming from Social Security. (That’s if Social Security is still around.)

The Hewitt Associates study estimated that women’s retirements will average 22 years, compared to 19 years for men. Factoring in projected increases in healthcare costs, it concluded that women need to save 2% more than men annually over 30 years to maintain their standard of living when they retire. If a woman earning $57,000 contributes 4% to her company retirement plan annually over 30 years instead of 2% (that’s $95 more a month), the study estimates that she’ll have an extra $81,000 at her retirement date.1

Take control of your finances. The best antidote to worrying about the financial future is planning for it. Investing to build wealth apart from work – and working with a qualified financial professional – is a great move. If you want to invest conservatively, you can find strong investment choices with the potential to outpace inflation. Whether your life is stable or changing, talk to me today and learn about the moves you can make for a comfortable financial tomorrow.

Jacob Warren
Warren Wealth Management
2300 Main Street, Suite 947
Kansas City, MO 64108
(816) 286-1810








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These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and 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.


Citations.
1 baltimoresun.com/business/investing/bal-bz.women10jul10,0,5561753,print.story [7/10/08]
2 msnbc.msn.com/id/15528502/ [11/9/06]


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Are there disadvantages to fixed returns?
Should you consider the potential of the stock market?

by Jacob Warren

Many retirees and pre-retirees are drawn to fixed annuities and CDs because they do not want to assume much risk. After all, there is no stock market risk involved with these fixed-return investments. Some people use them as their only vehicles for retirement planning.

But stepping out of the stock market altogether may not be such a good idea. In fact, for some it could be a serious retirement planning mistake. Here’s why.

Risk-averse investing has risks of its own. Every investment has advantages and disadvantages. Fixed-rate investments are no exception. While you eliminate market risk with a fixed annuity or CD, in a sense you are trading one kind of risk for another. You now contend with opportunity risk (or opportunity cost) and inflation risk. The fixed return you get might be far less than the return that stock market investing could bring you (in the short term and the long term). That fixed return might also fail to match the rate of inflation, leaving you with less purchasing power.

Volatility is something many of us endure in order to try for the kind of returns that may help us reach our financial goals. In the last year, the stock market has been quite volatile. But through the years, some investors have built considerable wealth through long-term stock market investment.

Do you really want to ignore the potential of the stock market? While short-term market movements may make stocks and funds seem too risky, the big risk could be the possibility of severely under funding your retirement by clinging to fixed-rate investments. The stock market offers opportunities for considerable financial gain – and the chance of returns exceeding those of most fixed-rate investments. While there is risk involved, there also exists a potential for considerable benefit.

If you say “no” to the market’s potential, you may regret your choice later in your retirement. In fact, you may find that you need long-term stock market investment to work toward certain retirement goals.

Explore the possibilities. If you’d like to learn more about investments positioned to take advantage of the market’s potential, be sure to speak with a qualified financial advisor. He or she may be able to help you determine how much risk you’re willing to tolerate, and which investment opportunities are the closest fit with your tolerance level. What you learn might be very illuminating, and it might change your whole investment outlook.


Jacob Warren
Warren Wealth Management
2300 Main Street, Suite 947
Kansas City, MO 64108
(816) 286-1810










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These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and 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.



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How might things change?

presented by Jacob Warren
content provided by Peter Montoya, Inc.

In February, President Barack Obama rolled out his plan for the federal budget – a budget created with the vision of aiding the middle class and making health insurance available to more Americans. Since his campaign, he has also repeatedly vowed that taxes will not go up for families making less than $250,000 annually.1

Given this mission and that pledge, the question becomes: how will the federal government fund the President’s sweeping social programs? If taxes won’t rise for the middle class and working class, where will the money come from? The all-but-certain answer: from businesses and about 3 million of the highest-earning Americans.

Turning back the hands of time? In the President’s conception, the sun would set on tax cuts given to high-income earners during the Bush years. Families earning more than $250,000 and individuals earning more than $200,000 would contend with the tax rates they faced during the Clinton administration.

The 2001 and 2003 tax cuts would expire in 2011. In 2011, the highest two tax brackets would return to 36% and 39.6%, and the capital gains tax rate would head back up to 20%. The Obama administration believes this could raise $637 billion over the coming decade.2

Will the estate tax stay the same? 2010 was to be the year of 0% estate tax – the great reprieve before estate taxes as high as 55% would hit in 2011. That was what was supposed to happen … but now it may not. President Obama wants the estate tax picture to remain as it is now, with estate tax rates of up to 45% kicking in above a $3.5 million exemption (which would be indexed to inflation for future years). In late April, a Senate proposal aimed to lower the estate tax rate and raise the exemption, but this fell by the wayside in budget negotiations with the House. So it appears the estate tax is here to stay, but it will apparently not reset to 2001 rates.3,4

How might things change for businesses? Among the ideas being considered: a requirement that investment partnerships pay regular income tax rates rather than capital gains tax rates; revoking methods of inventory accounting that can help to cut business taxes; and further restricting corporate options for automatic deferral of federal taxes on overseas income. Treasury Secretary Tim Geithner has claimed that planned tax increases would only affect about 2% of filers with business profits; the nonpartisan Joint Committee on Taxation puts the figure at 3%.1

Legislators call for compromises. On April 29, the House and Senate approved a $3.5-trillion outline of the proposed federal budget, but it did not include all of what the President wanted. (No Congressional Republicans voted for the budget resolution, and among them, Sen. John McCain denounced it as “generational theft”.)4

An important tax-linked question wasn’t answered: how to pick up the cost of making quality healthcare accessible to more Americans. The President wants to leave more money for that mission by capping tax deductions at 28% for families earning more than $250,000 a year, as opposed to the current 33% value. Charities and homebuilders would hate that idea, and figure to lobby Congress if it advances.4

The Obama administration also wanted to remove subsidies to farms with annual sales of more than $500,000, and have the opportunity to bill insurance companies for treatment of injuries linked to military service. Neither idea survived budget negotiations in Congress.4

Under the budget blueprint that was approved, the $400/$800 “Making Work Pay” tax credit – which Obama wanted to make permanent – would disappear after 2010.4

Changes may call for conversation. If these proposed tax changes become law, would you be affected? This is an excellent time to consider what might happen to your financial picture as a result. A talk with your financial or tax professional may help you to identify your options.

Jacob Warren
Warren Wealth Management
2300 Main Street, Suite 947
Kansas City, MO 64108
(816) 286-1810







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These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and 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.


Citations.
1 washingtonpost.com/wp-dyn/content/article/2009/04/26/AR2009042602838_pf.html [4/26/09]
2 money.cnn.com/2009/02/26/news/economy/obama_budget_outline/index.htm?postversion=2009022619 [2/27/09]
3 sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/04/25/BUGE178HU6.DTL [4/25/09]
4 latimes.com/news/la-na-budget30-2009apr30,0,5614049.story [4/30/09]



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Do certain banks need more capital? We’ll soon find out.

presented by Jacob Warren
content provided by Peter Montoya, Inc.

On April 24, the Federal Reserve revealed some of the details of the “stress tests” that will comprehensively analyze assets on the books of 19 notable U.S. banks. The results are expected to be released on Monday, May 4.1 (The banks already know the results in private.)

What the Fed white paper had to say was hardly surprising. While mentioning that “most U.S. banking organizations currently have capital levels well in excess of the amounts required to be well capitalized”, it conceded that the recession and resulting market upheaval “substantially reduced the capital of some banks.”1 Which ones? We’ll find out the week of May 4.

Why is the government doing this? It wants to determine which banks might have the greatest risk of failure if the recession worsens. Can certain banks survive worst-case scenarios?

No banks will “fail” the test, but some could receive more TARP money as a result – which could mean a lot more money poured into TARP.2

How realistic are the stress test scenarios? Even if the government uses computer-generated models to make economic projections, how accurate will they prove to be? Some economists and analysts think things could get worse, but many feel the economy will improve in coming months. Others have questioned the testing criteria. Many wonder if releasing too much information might diminish public confidence.

The first scenario assumes a 2009 with -2.0% GDP, unemployment hitting 8.4%, and home prices dropping 14%, then a 2010 with +2.1% GDP, 8.8% joblessness and home prices down 4%. The second scenario is rougher: -3.3% GDP, 8.9% unemployment and 22% lower home prices in 2009, then +0.5% GDP, 10.3% joblessness and a 7% downturn in home prices in 2010.3

The White House view. The Obama administration says the tests are all about the goal of stabilization - a cautionary move that could help banks avoid any chance of nationalization. In fact, any banks directed to increase their “capital buffer” will have to turn to the private sector first before going to the government.1

Jacob Warren
Warren Wealth Management
2300 Main Street, Suite 947
Kansas City, MO 64108
(816) 286-1810








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These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and 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.



Citations.
1 abcnews.go.com/Business/Economy/story?id=7421449&page=1 [4/24/09]
2 latimes.com/news/nationworld/world/la-fi-stress-tests19-2009apr19,0,655575.story [4/19/09]
3 forbes.com/feeds/afx/2009/04/24/afx6336215.html [4/24/09]


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