2013 Changes to Retirement Plan Contributions

Contribution limits for a 401(K), 403(b), and most 457 plans will rise to $17,500 (from $17,000). The catch-up provision for those over age 50 is $5,500. Be sure to take advantage of the over 50 limit if you feel that you haven’t saved enough for retirement.

Simple IRAs will increase to $12,000. Traditional IRAs and Roth accounts will increase to $5,500 with the catch-up for those over age 50 still at $1,000. There is an income limit for contributing to a Roth. The amount that can be contributed starts to phase out if your adjusted gross income is $178,000 – $188,000 for joint filers and $112,000 – $127,000 for singles. Remember, contributions to a Roth are not tax deductible but are tax-free for any withdrawals. Converting all or some of your existing IRA to a Roth is available to all income brackets. If you have any questions, please contact your advisor.

Saving for retirement is crucial and the unfortunate truth is that most people have not saved enough. The consensus for recommended retirement spending is 4% of your portfolio assets. If you have saved $500,000 throughout your working life, the yearly spending would be $20,000, plus Social Security.

Barbara Gray, CFP®
Partner

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Market Update through 10/15/12

 

as of October 15, 2012        
  Total Return
Index 12 months YTD QTD MTD
Stocks        
Russell 3000 19.82% 16.09% -0.03% -0.03%
S&P 500 20.25% 16.52% 0.06% 0.06%
DJ Industrial Average 18.45% 12.18% -0.01% -0.01%
Nasdaq Composite 16.31% 18.76% -1.63% -1.63%
Russell 2000 17.94% 13.02% -1.06% -1.06%
EAFE Index* 3.56% 7.31% 0.34% 0.34%
*EAFE index does not include dividends.        
         
Bonds        
Barclays US Aggregate 6.17% 4.16% n/a 0.16%
Barclays Intermediate US Gov/Credit 5.10% 3.70% n/a 0.17%
Barclays Municipal  9.69% 6.29% n/a 0.22%
         
    Current   Prior
Commodity/Currency   Level   Level
         
Crude Oil    $92.02    $92.19
Natural Gas    $3.44    $3.32
Gold    $1,744.70    $1,771.10
Euro    $1.30    $1.28

Mark A. Lewis

Director of Operations

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Market Update through 9/30/12

as of September 30, 2012        
  Total Return
Index 12 months YTD QTD Sept
Stocks        
Russell 3000 30.20% 16.13% 6.23% 2.63%
S&P 500 30.21% 16.45% 6.35% 2.58%
DJ Industrial Average 26.52% 12.19% 5.02% 2.75%
Nasdaq Composite 30.64% 20.73% 6.54% 1.70%
Russell 2000 31.91% 14.23% 5.25% 3.28%
EAFE Index* 10.01% 6.95% 6.14% 2.60%
*EAFE index does not include dividends.        
         
Bonds        
Barclays US Aggregate 5.47% 4.23% n/a 0.15%
Barclays Intermediate US Gov/Credit 4.66% 3.73% n/a 0.25%
Barclays Municipal  9.33% 6.78% n/a 0.67%
         
    Current   Prior
Commodity/Currency   Level   Level
         
Crude Oil    $92.19    $99.20
Natural Gas    $3.32    $2.88
Gold    $1,771.10    $1,769.40
Euro    $1.28    $1.31

Mark A. Lewis

Director of Operations

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Maximizing Your Spouse’s Social Security Survivor’s Benefit

In our 3rd quarter newsletter, fellow advisor Harli Palme wrote about Social Security and Medicare, explaining some of the basic features of both social insurance programs.  Those nearing Social Security eligibility age have many options to consider.  Making the right choice on when to start taking benefits is crucial, especially for married couples.

Full retirement age is the age at which you are eligible to receive your full Social Security benefit.   The current schedule is as follows:

1943 – 1954         66

1955                       66 + 2 months

1956                       66 + 4 months

1957                       66 + 6 months

1958                       66 + 8 months

1959                       66 + 10 months

1960+                     67

 

As is typical with the government, Social Security offers both sticks and carrots.  For example, you may take your benefit as early as age 62; however, for each year prior to your FRA, your benefit is permanently reduced (ergo, the stick).  If, for example, your FRA benefit would be $1500, your benefit at age 62 would be only $1125.

The administration offers those who can wait a pretty tasty carrot: for each year you delay taking Social Security, your benefit increases by approximately 8% per year.  Using the previous example, your benefit at FRA ($1,500) would increase to $1,930 – a 32% increase if you delay benefits until age 70.

There are numerous options available that are neither well known nor understood.  I am going to focus on one strategy that is a great way to ensure a surviving spouse receives the greatest benefit:  File and Suspend.  This strategy is most appropriate where one spouse worked and the other did not.

In order to qualify for File and Suspend, the covered (i.e. working) spouse must reach FRA.  At that time he/she applies for Social Security benefits and then immediately suspends them.  This allows the non-working spouse to apply for spousal benefits, equivalent to ½ of the covered spouse’s full-retirement benefit.  The covered spouse then allows his/her benefit to increase until age 70.

The File and Suspend strategy is an extremely useful option to help ensure the economic security of widows.  As we all know, men tend to earn more and die younger.  By delaying the claiming of Social Security, a husband will receive a higher benefit which will in turn provide his surviving spouse a higher Survivor’s Benefit on his death.

There are numerous articles that attempt to cover all of your options with Social Security.  However, we recommend that you consult with your financial advisor to discuss your circumstances and review your options to help you determine what is best for you.

 

Tracy H. Allen, CFP®

Financial Advisor

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Market Update through 9/15/12

as of September 15, 2012        
  Total Return
Index 12 months YTD QTD MTD
Stocks        
Russell 3000 25.42% 18.39% 8.30% 4.63%
S&P 500 26.11% 18.40% 8.14% 4.31%
DJ Industrial Average 24.20% 13.46% 6.21% 3.92%
Nasdaq Composite 23.64% 23.29% 8.80% 3.86%
Russell 2000 22.97% 17.84% 8.58% 6.55%
EAFE Index* 10.15% 11.14% 10.30% 6.61%
*EAFE index does not include dividends.        
         
Bonds        
Barclays US Aggregate 4.47% 3.17% n/a -0.66%
Barclays Intermediate US Gov/Credit 3.50% 2.95% n/a -0.33%
Barclays Municipal  7.31% 4.89% n/a -0.51%
         
    Current   Prior
Commodity/Currency   Level   Level
         
Crude Oil    $99.20    $95.43
Natural Gas    $2.88    $2.87
Gold    $1,769.40    $1,693.40
Euro    $1.31    $1.25

Mark A. Lewis

Director of Operations

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Market Update through 8/31/12

as of August 31, 2012        
  Total Return
Index 12 months YTD QTD Aug
Stocks        
Russell 3000 17.03% 13.15% 3.51% 2.50%
S&P 500 18.01% 13.51% 3.67% 2.25%
DJ Industrial Average 15.85% 9.19% 2.21% 1.04%
Nasdaq Composite 20.36% 18.71% 4.76% 4.55%
Russell 2000 13.40% 10.60% 1.91% 3.34%
EAFE Index* -3.35% 4.24% 3.45% 2.36%
*EAFE index does not include dividends.        
         
Bonds        
Barclays US Aggregate 6.13% 4.08% n/a 0.07%
Barclays Intermediate US Gov/Credit 4.27% 3.47% n/a 0.20%
Barclays Municipal  9.86% 6.07% n/a 0.13%
         
    Current   Prior
Commodity/Currency   Level   Level
         
Crude Oil    $95.43    $89.28
Natural Gas    $2.87    $3.15
Gold    $1,693.40    $1,602.70
Euro    $1.25    $1.23

Mark A. Lewis

Director of Operations

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Market Recovery Continues

A “drawdown” is the change in the value of an index from a peak to a trough.  Typically, the steeper the drawdown, the longer it takes to recover back to a previous peak.  The drawdown in the S & P 500 index from October 2007 to March 2009 was about -56%, the worst since the Great Depression.

The all-time high on the S & P 500 index was 1565 in October of 2007.  This is about the same level as the peak in March of 2000.  As of this writing, the S & P 500 is around 1400.  The S & P is currently up about +107% from the March 2009 bottom, and -10.5% from the all-time high. 

A “bear market” is defined as a change of -20% or more from a previous peak.  Sometimes these happen quickly, like 1987. In October 1987, the market fell over 20% in one day yet ended up positive for the year. Other bear markets happen more slowly, like 2000-2002, which was about 2.5 years from peak to trough.    

Since the end of World War II, there have been 9 declines of 20% or more, with an average recovery time of about 3.5 years to return to the previous peak.  The current recovery is approaching 5 years, so it is slower than usual.  In looking at historical data, it is no surprise that it is taking longer since the magnitude of the decline was greater.

The economy continues to recover, just not as quickly as we would like.  Similarly, jobs are being created, but at a slower rate than previous recoveries.  Companies have high levels of cash on their balance sheets, and are increasing dividends.  For the broad US market in the 12 months ending 6/30/12, there were more than 18 dividend increases to every decrease. Stock valuations appear reasonable relative to historical averages, especially considering the current low interest rate environment that is expected to persist for the next year or two.  We believe these are significant positive factors that are currently being overlooked due to the media focus on the European debt crisis and the US election.

Bill Hansen, CFA

Managing Partner

August 27, 2012

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Market Update through 7/31/12

as of July 31, 2012        
  Total Return
Index 12 months YTD QTD July
Stocks        
Russell 3000 7.33% 10.40% 0.99% 0.99%
S&P 500 9.14% 11.01% 1.39% 1.39%
DJ Industrial Average 10.12% 8.06% 1.15% 1.15%
Nasdaq Composite 7.89% 13.54% 0.20% 0.20%
Russell 2000 0.19% 7.03% -1.38% -1.38%
EAFE Index* -14.36% 1.84% 1.07% 1.07%
*EAFE index does not include dividends.        
         
Bonds        
Barclays US Aggregate 7.25% 3.78% n/a 1.38%
Barclays Intermediate US Gov/Credit 4.94% 3.09% n/a 0.97%
Barclays Municipal  10.51% 5.31% n/a 1.59%
         
    Current   Prior
Commodity/Currency   Level   Level
         
Crude Oil    $89.28    $86.87
Natural Gas    $3.15    $2.83
Gold    $1,602.70    $1,587.10
Euro    $1.23    $1.22

Mark A. Lewis

Director of Operations

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Citius, Altius, Fortius

Today marks the official start of the 2012 Summer Olympics, with the opening ceremonies taking place in London. With all the news about Greece and its part in the European debt crisis, I sometimes forget that this is the same country that was once the pinnacle of Western civilization and the birthplace of the Olympic Games. It is said that the first Olympic Games took place in 776 B.C., and continued for almost 12 centuries before being banned by Emperor Theodosius in 393 A.D. 1200 years! The height of Greek civilization ranged for more than 800 years, during which we saw the creation and rise of democracy, the founding of the great philosophical schools of Socrates and Plato, and Hippocrates’ establishment of medicine as a distinct discipline.

What a long, strange trip it’s been for Greece.  It brings to mind a word of Greek origin, hubris, meaning “exaggerated pride or self-confidence.” I’m sure the ancient Greeks could not have imagined a future that is our present day, and the depths to which their country would fall. The path to solvency for Greece will likely be difficult and painful, but European policymakers are still hopeful that they can create a plan that will keep the country in the Euro zone. Perhaps the Greeks can come to terms with austerity measures by taking comfort from Socrates, who said, “He is richest who is content with the least, for content is the wealth of nature.”

Sarah DerGarabedian, CFA

Director of Research

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Meaningful Changes to 401(k) Plans

Regulations 408(b)2 and 404(a)5 mark the most dramatic change to 401(k) retirement plans in many years.  Arguably, these regulations will change the very nature in which service providers operate, compete for business and are held accountable for their actions.  These regulations refer to disclosure requirements and are imposed on all service providers, such as investment advisors, broker dealers, attorneys, consultants, third party administrators (TPA), and record keepers.  To briefly summarize:

408(b)2:  Is the plan-level disclosure in which service providers discuss (1) fees and expenses incurred by the plan, (2) acknowledgement of fiduciary status, and (3) potential conflicts of interest.  Upon review of the disclosures from service providers, the plan sponsor should have a good estimation of the “reasonableness” of the expenses associated with operating the retirement plan in relation to the services being provided.  

404(a)5:  Is the participant-level disclosure.  This disclosure helps the participant understand how much of the plan-level expenses were attributable to their investment account.  Fees include mutual fund expense ratios, custodian fees, TPA fees, and Investment Advisory fees.  It is noteworthy to mention that the participant disclosures only include fees that not paid by the plan sponsor.  For example, Investment Advisor fees may be paid by the sponsoring employer. In this case, no Investment Advisor fees are reported to the participant.

Prior to these regulations, the term “fiduciary” was loosely used.  Also, fees and expenses were not fully disclosed.  With no standardized process for determining the “reasonableness” of a retirement plan’s offering, it’s not surprising that plan sponsors were not fully informed.  In my opinion, these regulations represent a huge victory for 401(k) plans.  Finally, plan sponsors and participants will be able to better understand whose interests are being served (referring to fiduciary status and conflict of interest disclosures) and a better understanding of the cost associated with saving for retirement. 

I’m pleased to share that Parsec has been in agreement and in compliance with these rules well before the government imposed deadline of July 1, 2012.  In our view, these are welcome changes to the retirement plan industry and perhaps a little overdue.  We believe in being transparent with our clients because this fosters stronger relationships and better overall satisfaction.

Neal Nolan, CFP®

Financial Advisor

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