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Friday Financial Five – August 1st, 2014

Friday, August 01, 2014

 

A rough day for the market

While the majority of reports attribute Thursday’s big losses to a reaction to Fed policy, not much has changed on that front. Fed Chair, Janet Yellen, continues to be extremely accommodative with a commitment to keeping interest rates low. The Fed will continue to reduce bond buying, but according to Yellen, the economy still hasn’t recovered to pre-recession levels on several fronts. There’s a fear that positivity in employment, housing, and GDP means higher interest rates sooner, but a sell-off because of impending Fed action would seem premature.

Subprime auto loans surge

Recent financial reform has focused on educating the public and tightening underwriting standards in several areas. Revised lending guidelines have lead to a healthier housing market and payday loans are receiving plenty of attention. Subprime auto loans have surged recently but seem to have escaped increased scrutiny, as reported by Jill Schlesinger on CBS. While auto lending may not hold the same level of importance as housing to the economy as a whole, the public still needs to be aware of prudent funding options available.

More good news for the wealthy

Republicans in the U.S. House of Representatives are considering a vote this year to completely repeal the estate tax. The Senate would assuredly vote against the measure if it passed the House but there’s always that chance. Meanwhile, wealthy borrowers are receiving seven and eight figure loans in record numbers. According to a Bloomberg report, these huge dollar borrowings come at a time when first-time homebuyers have become a much smaller percentage of total borrowers.

Social Security may just be there when you retire

It’s fashionable to assume that Social Security won’t be available at retirement, but that may be jumping the gun. Each year, Trustees of the Social Security and Medicare trust funds report to Congress and provide a summary of that report. Social Security is funded for the next 19 years, with funds peaking in five years and then rapidly falling in conjunction with increased baby boomer retirement. Meanwhile, Medicare looks slightly better than last year because of stabilizing health care inflation and projects to run out of funds in 2030. At the point, with funds depleted, the programs would still be able to fund over 75 percent of obligations. Changes are in order, but there is still time to address shortfalls.

Another celebrity estate planning lesson

Almost once a month, a high profile individual dies and brings attention to estate planning issues that are either costly or confusing. In the case of Philip Seymour Hoffman, his will was roughly 10 years old and his estate planning intent was to avoid making “trust fund kids” of his three children. Hoffman did set up a trust, but the trust document named only his son and didn’t mention his two daughters, born after 2004. He wasn’t married to his long-time girlfriend and mother of the children, making spousal estate tax breaks unavailable. The result is a huge tax bill and confusion that could have easily been avoided with more attention to planning details.

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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