Meet the most dysfunctional family in America - December 2015

Holiday gatherings are a great time to gather with family and friends IF you are part of a semi-normal, functional extended family. Christmas Vacation is my favorite Christmas movie primarily because it thrusts the Griswold's array of dysfunctional characters into our faces.

This Christmas I have found an even more discombobulated cast of characters to introduce you too - The family of Government Economists that are supposed to be helping our economy improve. The heated internal argument between Fed Chair Janet Yellen and Alan Krueger, the former chair of Obama's Councel of Economic Advisors has spilled into the public arena. Hilary Clinton mentioned Krueger's support for her minimum wage increase during the second democratic debate so Yellen and Krueger share the same political ideology. Friendly fire enhances the entertainment value as their tiff grows.  

First a bit of background. As our country emerged from the great recession the biggest puzzle has been reconciling the steady decline in the labor force participation rate with the narrative of a strong jobs market. after 6 years of "recovery" some fo these workers should be returning to the labor market and seeking jobs. The problem is it just isn't happening. Here's the reality:


If you do the math, more than 94 million Americans are staying on the job market sidelines. Let's put that number into some perspective. The total population of Germany is only 80 million people and their country produces more than 3.7 trillion dollars of GDP each year. Our economy needs these folks to find the motivation to get back to work. 

The debate over why these workers are on the couch is the source of the feud between Yellen and Krueger. Professor Krueger published a paper in March 2014 in which he concludes that those who have been out of the labor force are not likely to re-enter it. Yesterday Yellen publicly called out Krueger's assertion and this morning he wasted no time in jumping on CNBC to swing back and take a victory lap:

18 months after his paper was published, the labor force participation data supports Krueger's analysis. These folks are still on the sidelines and show no inclination of returning to work. I'll pick up the tab if these two want to go to dinner to discuss it:


No margin for error

As the holiday shopping race kicks off, reports are all over the place about whether consumers are spending more than last year. Online sales are much stronger than last year but bricks and mortar sales are still 3 times online (11 billion versus 4 billion online). This comes on the heels of last weeks report that consumers who have some extra cash are choosing to save it for a rainy day instead of spending it.


By relying on optimistic spending projections, businesses have built inventory levels to the point that they have little room for error in their planning. The Census Bureau reported that the ration of inventory to sales has jumped to its highest level since the great recession. If consumers hesitate in opening their wallets, retailers will have to slash prices to dump some of this excess inventory.

As inventories have continued to build over that last 12 months, we have asked for help in answering the central question that will drive the Fed, the stock market and the economy, "Where is demand going to come from?"


Where does the year go?

With the Thanksgiving holiday upon us, 2015 is quickly coming to an end. What an exciting year it has been for me with joining the LeConte Wealth Management team and transitioning my accounting practice. With our hectic lives, we have many important responsibilities that can get forgotten until they become an emergency.

With 2015 wrapping up, what should be taken care of before year-end? There are numerous options to save taxes depending on your situation, but some major things to consider will be:


Harvest Losses-

If you’ve recognized some capital gains throughout the year, offset those by selling some of your loss positions. If you really like those stocks for the long-term, you can repurchase after 30 days without worry of wash-sale rules.


Pay 0% Tax on Gains-

If you are in the 10% or 15% tax-bracket, the long-term capital gains rate is 0%. This could have other impacts, so we need to discuss the overall impact on things like Social Security.


Defer Taxes & Save for Retirement -

If you are eligible for a 401(k) or other retirement plan, contributing to these accounts will save taxes this year and get you that much closer to financial independence down the road.


Find a Worthy Charity –

If you have appreciated stocks, a great option is to give it to your favorite charity. You can get a charitable deduction for the full fair market value and avoid having to pay taxes on the appreciation.


Take Distributions-

Several accounts have yearly requirements for distributions or spending. If you are 70 ½ or older, you likely have Required Minimum Distributions that need to be taken from your retirement accounts. For those younger, you may have deferred money into a Flexible Spending Account that needs to be spent before you lose it.

Have you taken care of everything you need to for 2015?  If you are unsure, we need to get together and review your situation before it becomes a financial crisis.


Financial First Responders

When you hear sirens and see an emergency vehicle speed past, it’s likely on its way to respond to an accident.  These heroes head to the fire or the car wreck to help people. First responders deserve our thanks for their bravery and unwavering duty to help those in need.  Yet when not fighting fires or saving lives, these same men and women spend countless hours educating us on how to prevent these accidents.  They teach our children how to”stop, drop and roll”, remind us to change the batteries in our smoke detectors, and gently remind us to obey traffic laws by writing tickets if we run red lights.  They are dedicated to preventing disaster to reduce damage and save lives.

You may wear your seat belt and look both ways before you cross the street, but do you exercise the same behavior when it comes to your finances? 


Here are some questions to ponder as you reflect on your financial situation:

If you had a financial emergency, who would you call?

Do you have an advisor that you could call to help you if you had an unforeseen event, such as a job loss, or significant loss to your portfolio?

Do you focus on preventing financial risk?

Do you have someone who proactively counsels you on how to prevent devastating financial problems?

Has that someone called you (not taken your call) in the past year to address what would happen if things went haywire in the markets?

If you are contemplating retirement in the next five years, do you have a plan to help you get there?


Financial markets move in cycles.  Investors have consistently shown their inability to make the right investment decisions when things get messy in the financial markets.  They want to buy stocks when they are at their highest and sell them when they are at their lowest.   

Our family has a plan to get out of our house if the smoke detectors go off.  Do you have the same plan in effect for your portfolio?


Cost-of-Living Adjustment

Earlier this month, the government announced that there would be no Cost-of-Living Adjustment (COLA) increase for Social Security in 2016. Should retirees be concerned about not getting more money next year?  This was the topic of discussion in a recent USA Today article.

I hope news like this is not startling to you or your lifestyle in retirement. Unfortunately, in this economy, these low COLA adjustments are becoming the norm for retirees.  This is the 3rd time in the last 7 years that the COLA will be 0% and the average over that period is just 1.21%.  This can definitely be a strain on the budget over time.  While the Consumer Price Index used to calculate the COLA is at 0%, things like food, shelter and medical care are continuing to increase.

So what are you to do? Most people don’t envision their retirement being a constant worry about expenses and reduction in lifestyle.  They hope that they’ve planned and saved enough to endure these sluggish economic times.  The average older American gets 34% of their income from Social Security, which means 66% comes from other sources.  How are your other sources of retirement income going to react and assist in maintaining your lifestyle?

 Have you created a financial plan that is able to withstand 0% growth?  If you don’t know, it’s time figure it out.

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